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Full text of "Research in the economics of forestry"

HUME LIBRARY 
Florida Agricultura 
Experiment Station 

Gainesville, Florida 





Digitized by the Internet Archive 
in 2013 



http://archive.org/details/researchineconomOOduer 



RESEARCH IN THE 
ECONOMICS OF FORESTRY 



RESEARCH 

IN THE 



Economics of Forestry 



William A. Duerr and Henry J. Vaux 

Editors 



CHARLES LATHROP PACK FORESTRY FOUNDATION 

1 214 Sixteenth Street, N.W., Washington 6, D. C 

!953 






AGRI- 
CULTURE 
UfiRARV! 



Copyright 1953 
Charles Lathrop Pack Forestry Foundation 



Printed in the United States of America by 
THE WAVERLY PRESS, BALTIMORE, MD. 



Foreword 

This book has two immediate purposes. The first is to define 
the economics of forestry (forest economics) as a field of organized 
knowledge. The field is defined by specifying the subjects it con- 
tains, by arranging them and making clear their interrelationships, 
and by showing the logic of both content and arrangement. The 
second purpose is to explore the methods of forest economics as a 
field of research. This purpose is accomplished mainly by describ- 
ing promising research approaches to representative problems. 

Beyond its two immediate goals, the book is aimed toward 
furthering rational use of forest resources — and thus promoting 
human well-being — through better research, fuller knowledge, and 
more effective action on the economic problems of forest conser- 
vation. 

The book may be found useful by research workers who are 
embarking upon studies in the economics of forestry, by research 
institutions planning their programs, by graduate students looking 
for worth-while thesis material and for guides to developing it, 
and by any of these in the task of relating their specific research 
topics to the entire field. The book should be of value, also, to 
teachers and graduate students striving to integrate their forestry 
and economics and needing a special reference on the scope and 
orientation of the combined field; to forest administrators, who 
will find many of the problems they face analyzed here in terms 
which, though general, are nonetheless helpful in making specific 
decisions; and to anyone seeking a definition of the economics of 
forestry. 

The work is written primarily for the technical reader — the 
forester, the economist, or the student of both fields. Indeed, some 
acquaintance with both fields on the reader's part is assumed in 
many of the sections. The book represents chiefly an American 
point of view, and its illustrations are drawn almost entirely from 
the United States. However, a great many of the principles and 
approaches that are suggested should be useful to students in 
other nations. 

Work upon the book was started in July 1947, as the main 
feature of a project financed by the Charles Lathrop Pack Forestry 
Foundation and sponsored also by the Society of American 



vi RESEARCH IN THE ECONOMICS OF FORESTRY 

Foresters.* Responsibility for the project was assigned to a com- 
mittee of the Society, composed of Henry J. Vaux, Charles H. 
Stoddard, and William A. Duerr, chairman. Mr. Stoddard, be- 
cause of the pressure of other duties, was obliged, near the close 
of the first year, to move from the committee into a less active 
role in the project. Since then, the work of the committee has been 
carried out by the other two members. 

The book comprises eight chapters. The first is introductory: it 
covers some of the highlights of United States forest problems, a 
brief history of forest-economics research, a general review of the 
functions and methods of this research, and a sketch of the content 
of forest economics. The last chapter, VIII, describes recent and 
current forest-economics research in the United States. 

The intervening chapters, II through VII, form the meat of the 
book. Each covers a major segment of the forest-economics field. 
Each is composed of a series of statements on typical research 
topics, set in a matrix of text designed to introduce them and tie 
them together. These topic statements vary considerably in com- 
pleteness and attention to detail, depending on the importance of 
the subject to a representative view of the field and on the amount 
known about the subject. The emphasis given a topic is not 
intended to suggest the importance of the research problem; in 
fact, the project was not designed to evaluate such importance. 

The fuller statements define the problem, give the purpose of 
the research, and describe the particular aspects of the problem 
that may call for study, the sources of data, the methods of in- 
vestigation, the pitfalls that the research worker is likely to en- 
counter, and the form his results may take. The topic statements 
are not intended to be working plans. They are, however, guides 
for anyone who is getting a study under way and preparing to 
write a working plan. Furthermore, the scope of a single topic will 
not necessarily coincide with that of the problem which the re- 
search worker wishes to study: his problem may be included as a 
part of some topic, or it may consist of two or more topics, or it 
may not appear at all in the written topics, but may merely be 
suggested or represented there. The concept of these topic state- 
ments owes much to the earlier work of the Social Science Re- 



* Besides the book, the project included the compilation, cooperatively with 
the U. S. Department of Agriculture Library, of a bibliography on forest eco- 
nomics. Published by the Library in June 1950 under the title, Economics of 
forestry: a bibliography for the United States and Canada, 1940-194? ', this work 
should prove a useful companion piece to the book. 



FOREWORD vn 

search Council, in its series of bulletins on the scope and method 
of research in agricultural economics. 

One hundred twenty-seven research topics are covered in the 
book. The topics are arranged in accordance with their subject 
matter, not only by chapter and section, but also in many cases 
by groups in which the leading topic deals with a broad problem, 
and the succeeding topics with selected parts or aspects of this 
problem. The topics in such a group are identified by the same 
topic number and distinguished by a letter after the number. The 
topic numbers are used throughout the text as a shorthand device 
for reference. 

It was apparent from the outset that writing a book of such 
scope was not a job for a small committee. The purposes of the 
project would be served most fully by enlisting the help of as many 
as possible of those foresters, economists, and related specialists 
who had pertinent knowledge and experience to contribute. In 
soliciting this help, the committee met on every side the most 
generous response. Accordingly it has been possible for the com- 
mittee to leave the bulk of the writing to others and to concentrate 
upon steering the project and, with the help of its associates and 
advisers, upon reviewing the manuscripts and serving as the editors 
of the book. The editors have written the matrix of text and many 
of the shorter topic statements in chapters II through VII — the 
unsigned material. The remainder of the book has been written 
by the contributors whose names appear on the articles. Contribu- 
tors do not in every case agree in their points of view. As much 
coordination as seemed possible and desirable was effected in the 
course of writing and editing. Beyond this, the various points of 
view are left to speak for themselves. There is no intention of 
standardizing or freezing research methodology in this young and 
growing field. 

Again, in the course of writing and editing it was found possible 
to avoid some duplication among articles, mainly by the device 
of cross-referencing. But duplication has not been eliminated. 
What remains represents the editors' compromise between the 
convenience of the reference user and that of the sustained reader, 
as modified by the need to preserve integrity of individual contri- 
buted articles. 

In the task of soliciting and assisting with manuscripts, the 
editors enjoyed the close support of a small group of associates. 
They were assisted also by a larger group of advisers, one or more 
of whom reviewed each manuscript submitted by a contributor, 



vill RESEARCH IN THE ECONOMICS OF FORESTRY 

as well as completed chapters and groups. of chapters. To all 
these individuals, whose names are listed below, the editors give 
warm thanks for their contributions to the project. 

ASSOCIATES TO THE EDITORS 

Lee M. James, Michigan State College, East Lansing, Mich. 

Albert C. Worrell, Univ. of Georgia, Athens, Ga. 

John A. Zivnuska, Univ. of California, Berkeley, Calif. 

CONTRIBUTORS 

Edith Adams, United Nations, New York, N. Y. 

Walter C. Anderson, Pennsylvania State College, State College, Pa. 

Raleigh Barlowe, U. S. Bureau of Agricultural Economics and Michi- 
gan State College, East Lansing, Mich. 

Percy M. Barr, Univ. of California, Berkeley, Calif. 

M. R. Benedict, Univ. of California, Berkeley, Calif. 

Warren J. Bilkey, Univ. of Connecticut, Storrs, Conn. 

John D. Black, Harvard Univ., Cambridge, Mass. 

Richard H. Blythe, Jr., Colorado Springs, Colo. 

Kenneth S. Boardman, National Production Authority, Washington, 
D. C. 

Walter E. Bond, Southern Forest Exp. Sta., New Orleans, La. 

R. G. Bressler, Jr., Univ. of California, Berkeley, Calif. 

R. W. Cowlin, Pacific N. W. Forest Exp. Sta., Portland, Ore. 

James W. Cruikshank, Southeastern Forest Exp. Sta., Asheville, N. C. 

Samuel T. Dana, Univ. of Michigan, Ann Arbor, Mich. 

Lily Mary David, U. S. Bureau of Labor Statistics, Washington, D. C. 

Kenneth P. Davis, Univ. of Michigan, Ann Arbor, Mich. 

M. B. Dickerman, Lake States Forest Exp. Sta., St. Paul, Minn. 

Ivan M. Elchibegoff, Mt. Rainier, Md. 

E. M. Gould, Jr., Harvard Forest, Petersham, Mass. 

G. R. Gregory, Univ. of Michigan, Ann Arbor, Mich. 

John A. Guthrie, State College of Washington, Pullman, Wash. 

Sam Guttenberg, Southern Forest Exp. Sta., Crossett, Ark. 

R. C. Hall, U. S. Bureau of Internal Revenue, Washington, D. C. 

V. L. Harper, U. S. Forest Service, Washington, D. C. 

G. L. Hayes, Pacific N. W. Forest Exp. Sta., Roseburg, Ore. 

A. M. Herrick, Purdue Univ., Lafayette, Ind. 

W. S. Hopkins, Univ. of Washington, Seattle, Wash. 

Neil T. Houston, Island Trading Company of Micronesia, Honolulu, 
Hawaii 

S. Blair Hutchison, Northern Rocky Mtn. Forest Exp. Sta., Missoula, 
Mont. 

Lee M. James, Michigan State College, East Lansing, Mich. 

Vernon H. Jensen, Cornell Univ., Ithaca, N. Y. 



FOREWORD IX 

H. R. Josephson, U. S. Forest Service, Washington, D. C. 

Harold M. Kaufman, Mississippi State College, State College, Miss. 

M. M. Kelso, Montana State College, Bozeman, Mont. 

W. W. Leontief, Harvard Univ., Cambridge, Mass. 

Martin Maevers, California Forest Exp. Sta., Berkeley, Calif. 

Paul E. Malone, Univ. of Kansas, Lawrence, Kans. 

T. F. Marburg, Hamline Univ., St. Paul, Minn. 

Ralph W. Marquis, Northeastern Forest Exp. Sta., Upper Darby, Pa. 

Lee R. Martin, North Carolina State College, Raleigh, N. C. 

Robert J. M. Matteson, Institute of Public Administration, New York, 
N. Y. 

Donald H. McClelland, Mutual Security Agency, Rome, Italy 

Alf Z. Nelson, New Ipswich, N. H. 

John H. Nixon, Office of Price Stabilization, Washington, D. C. 

George T. Olson, Munitions Board, Washington, D. C. 

Adon Poli, U. S. Bureau of Agricultural Economics, Berkeley, Calif. 

R. R. Reynolds, Southern Forest Exp. Sta., Crossett, Ark. 

Frank Robotka, Iowa State College, Ames, Iowa 

Mont H. Saunderson, U. S. Forest Service, Denver, Colo. 

Adolph Scolnick, formerly U. S. Bureau of Labor Statistics, Washing- 
ton, D. C. 

Allan D. Searle, U. S. Bureau of Labor Statistics, Washington, D. C. 

H. E. Selby, U. S. Bureau of the Census, Washington, D. C. 

Ruth Shallcross, Institute of Paper Chemistry, Appleton, Wis. 

H. B. Shepard, Federal Reserve Bank of Boston, Mass. 

Erling D. Solberg, U. S. Bureau of Agricultural Economics, Washing- 
ton, D. C. 

Herbert S. Sternitzke, Southern Forest Exp. Sta., New Orleans, La. 

Blair Stewart, Oberlin College, Oberlin, Ohio 

Charles H. Stoddard, Minong, Wis. 

Layton S. Thompson, Montana State College, Bozeman, Mont. 

Roy S. Thomson, late of Duke Univ., Durham, N. C. 

A. S. Todd, Jr., Southeastern Forest Exp. Sta., Asheville, N. C. 

R. H. Van Voorhis, Univ. of Alabama, University, Ala. 

A. E. Wackerman, Duke Univ., Durham, N. C. 
Paul J. Weber, Hercules Powder Co., Wilmington, Del. 

E. C. Weitzell, U. S. Rural Electrification Administration, Washing- 
ton, D. C. 

B. O. Wheeler, Univ. of Washington, Seattle, Wash. 
John A. Zivnuska, Univ. of California, Berkeley, Calif. 

ADVISERS TO THE EDITORS 

C. Edward Behre, U. S. Forest Service, Washington, D. C. 
Howard W. Beers, Univ. of Kentucky, Lexington, Ky. 

M. R. Benedict, Univ. of California, Berkeley, Calif. 



X RESEARCH IN THE ECONOMICS OF FORESTRY 

John D. Black, Harvard Univ., Cambridge, Mass. 

R. G. Bressler, Jr., Univ. of California, Berkeley, Calif. 

W. R. Chapline, U. S. Forest Service, Washington, D. C. 

A. C. Cline, U. S. Forest Service, Washington, D. C. 

W. W. Cochrane, Univ. of Minnesota, St. Paul, Minn. 

Kenneth P. Davis, Univ. of Michigan, Ann Arbor, Mich. 

C. D. Dosker, Gamble Brothers, Louisville, Ky. 

John T. Dunlop, Harvard Univ., Cambridge, Mass. 

C. R. Lockard, Northeastern Forest Exp. Sta., Upper Darby, Pa. 

G. L. Mehren, Univ. of California, Berkeley, Calif. 

Walter Mulford, Univ. of California, Berkeley, Calif. 

Alfred C. Neal, Federal Reserve Bank of Boston, Mass. 

Geoffrey Shepherd, Iowa State College, Ames, Iowa 

Charles H. Stoddard, Minong, Wis. 

Sidney C. Sufrin, Syracuse Univ., Syracuse, N. Y. 

Lloyd W. Swift, U. S. Forest Service, Washington, D. C. 

The project is greatly indebted, also, to the educational insti- 
tutions, private firms, public agencies, and other groups which 
made it possible for many of the above collaborators to contribute 
their time. 

The editors appreciate tremendously the help of Tom Gill and 
Ellen C. Dowling, of the Pack Foundation, who gave them en- 
couragement and assistance of many kinds; Jean B. Duerr, who 
had responsibility for the clerical phases of the project; Helen 
Boyd and Frances Flick, of the U. S. Department of Agriculture 
Library, and Mary L. Eakin, of the University of California 
Library, who helped with the citations; and those persons who 
contributed to the book through their prompting and criticism, 
especially K. E. Barraclough, Extension Forester, Durham, N. H.; 
George T. Carlisle, Prentiss and Carlisle Company, Inc., Bangor, 
Me.; A. Lee Coleman, University of Kentucky, Lexington, Ky.; 
R. N. Cunningham, Lake States Forest Experiment Station, St. 
Paul, Minn.; Ellery Foster, formerly of International Wood- 
workers of America, CIO, Portland, Ore.; L. R. Grosenbaugh, 
Southern Forest Experiment Station, New Orleans, La.; J. D. B 
Harrison, Department of Resources and Development, Ottawa, 
Ontario, Canada; Frank A. Ineson, formerly of Northeastern 
Forest Experiment Station, Upper Darby, Pa.; John Ise, Uni- 
versity of Kansas, Lawrence, Kans.; Richard S. Kearns, Winton 
Lumber Co., Martell, Calif.; Rodney C. Loehr, Minnesota Histori- 
cal Society, St. Paul, Minn.; W. H. Nicholls, Vanderbilt Uni- 
versity, Nashville, Tenn.; James G. Osborne, U. S. Forest Service, 
Washington, D. C; James C. Rettie, U. S. Forest Service, Wash- 



FOREWORD 



XI 



ington, D. C; Julian E. Rothery, Cotuit, Mass.; David Rozman, 
University of Massachusetts, Amherst, Mass.; Theodore W. 
Schultz, University of Chicago, Chicago, 111.; Hardy L. Shirley, 
State University of New York, College of Forestry, Syracuse, 
N. Y.; Warren C. Waite, late of the University of Minnesota, St. 
Paul, Minn.; David Weeks, University of California, Berkeley, 
Calif.; and E. T. F. Wohlenberg, Masonite Corporation, Ukiah, 
Calif. 

State University of New York, William A. Duerr 

College of Forestry, Syracuse, N. Y. 



University of California, 

School of Forestry , Berkeley, Calif. 



Henry J. Vaux 



December 1952 



Contents 



I. Introduction i 

Forest economics in the United States i 

Early years 2 

Research projects 4 

Problem analysis and planning 6 

Economics in a changing economy 8 

Need for definition 9 

Function of forest-economics research 10 

Combining economics with technology 10 

Assessing an uncertain future 11 

Appraisal of values difficult to measure 12 

Facts and analysis, not decisions 13 

Content of forest economics 13 

Changing definitions 14 

What is the economics of forestry? 15 

Why a specialized economics? 17 

Research methodology in the economics of forestry. ... 18 

Selecting and formulating the problem 19 

Selecting the hypotheses 19 

Selecting and organizing the data 20 

Testing the hypotheses 24 

Drawing useful inferences 25 

Research method and research practice 26 

Organization of subsequent material 27 

II. The Forest Economy at Large 30 

Location of economic activity 30 

1. Delineation of forestry areas 31 

2. Location factors in forestry and forest industry. 37 
2a. Effect of transportation costs on the forest econ- 
omy 44 

3. Interregional competition in timber production . 44 
3a. International trade in a timber product 45 

History, status, and trends of the forest economy 52 

4. Economic history of forestry and forest industry 52 

5. History of economic thought in forestry $2 

6. Status and trends of forest resources and industry 53 
Flow of economic activity 60 



y. The forest economy in relation to other branches 

of the economy 60 

8. Income from the forest economy 64 

9. Employment in the forest economy 65 

10. Economic fluctuations and the forest economy. 68 

11. Potentialities of the forest economy 74 

Planning and evaluation of forestry programs and poli- 
cies 78 

12. Area problem analysis in forestry 79 

12a. Survey and evaluation of forestry research pro- 
grams 83 

13. Evaluation of private forestry programs 83 

14. Evaluation of public forestry programs 83 

14a. Evaluation of watershed improvement on a for- 
ested area 89 

15. Evaluation of forest-protection programs 91 

15a. Evaluation of public insect- and disease-control 

programs 92 

15b. Optimum intensity of protection from forest fires 98 

15c. Optimum distribution of forest-fire-control funds 105 

16. Basis and effects of public regulation of private 

forest management 108 

1 6a. Influence of rural-land zoning on the forest econ- 
omy 109 

Sociology of forestry 113 

17. Forest use and community stability 117 

III. The Agents of Production 120 

Labor 1 20 

18. Market for forest labor 121 

19. Labor requirements in forestry and forest industry 121 

20. Output per man-hour in a forest industry 127 

21 . Supply of forest labor 132 

22. Part-time employment in the forest economy. . 137 

23. Wage structure in forest industry 137 

23a. Hourly vs. piece-wage rates in forest employment 142 

24. Conditions of employment of forest labor 145 

Capital 149 

25. The capital market in relation to the forest econ- 

omy at large 1 50 

/ 26. Needs and opportunities for forest credit 150 

27 . The rate of interest in forestry and forest industry 1 57 
Entrepreneurship 158 

28. Governments as forest entrepreneurs 158 

29. Private persons as forest entrepreneurs 169 



Land use 170 

30. History and prospective trends of rural land use. 170 
30a. Factors responsible for present use of land 174 

31. Evaluation of alternative land uses 179 

31a. Evaluation of pasture vs. forest use of land. ... 180 

t Land tenure 1 80 

32. Forms of forest-land tenure 181 

33. History, status, and trends of forest-land tenure. 186 

34. The forest-land market 187 

3$. Evaluation of tenure alternatives for forest land. 192 

36. Distribution of rights in forest land 197 

37. Forest-land ownership and its relation to forest 

management 202 

38. Effects of creditor policy on forest management. 207 

IV. The Management of Forests 209 

I Enterprise aspects of forest management 210 

39. Historical costs of producing standing timber. . 211 

40. Management records for research forests 214 

41. Potential costs and returns of timber growing. . 221 

42. Methods of evaluating alternatives in timber or 

forage management 225 

42a. Financial maturity of a tree 232 

42b. Optimum density of timber growing stock 232 

42c. Optimum intensity of grazing on timber land. . . 233 

43. Farm woodland management 235 

Financial problems of forest management 242 

44. Needs and opportunities for forest insurance. . . 242 

45 . Effect of income and death taxation on forest own- 

ership and management 246 

46. Bases and procedures of forest-property-tax assess- 

ment 249 

Social aspects of forest management 255 

47. Multiple-purpose forest management 255 

47a. Economics of conflicting use on a forested water- 
shed 260 

47b. Evaluation of recreational vs. industrial use of 

forest land 261 

47c. Economics of forest-wildlife management 263 

48. Forest management in an area 264 

48a. A classification of forest-management practices. 264 

Forest valuation 269 

49. Appraisal of forests 269 

49a. Values in forest wildlife 273 

49b. Value of a watershed forest 280 



49C Geographical variations in forest-land value. ... 281 
Supply of forest products 281 

50. Short-run stumpage-supply responses of the firm . 282 

5 1 . Long-run stumpage-supply responses of the firm . 283 

52. Supply of stumpage in an area 285 

53. Supply of non timber products 286 

V. Forest-Product Harvesting and Processing 287 

Harvesting and processing industries 287 

54. A wood-using industry in an area 288 

55. Production response to price in a timber-products 

industry 289 

56. Associations of timber-processing firms 296 

Management of harvesting and processing firms 297 

57. Guides to maximizing net returns of a forest-prod- 

ucts firm 297 

57a. Costs of harvesting or processing timber 298 

57b. The marginal tree or log 304 

57c. Optimum utilization of the tree 311 

57d. Economics of logging development 313 

58. Investment decisions of forest-products firms. . . 313 

59. Vertical integration in forest-products firms. . . . 324 
59a. Optimum combinations of land, growing stock, 

and processing plants in an integrated firm . . . 329 

60. Horizontal integration in forest-products firms. 330 

61. Production policies of forest-products firms. ... 331 
61 a. Influence of overhead costs of firms on produc- 
tion policy 334 

VI. The Meeting of Supply and Demand for Forest 

Products 335 

Marketing 336 

1 62. Forest-products marketing in an area 336 

63. Distribution of a product from forest to consumer 343 

64. Methods and costs of marketing a forest product . 345 
6$. Economic history of a forest-product market area 346 

Geographic aspects of the market 346 

66. Timber-sheds 347 

67. Distribution of forest products from a marketing 

center 352 

68. Market geography as determined by transporta- 

tion rates for a forest product 352 

Market agencies and their functions 352 

69. Cooperatives in forestry 3^3 

70. Role of the concentration yard in lumber market- 

ing 359 



^7 T - Bargaining position of sellers of forest products. 361 

72. Bargaining position of buyers of forest products . 368 

73. Sales policy and programs of forest-product firms 368 
Product aspects of the market 373 

74. Grading of timber and timber products 373 

75. Effects of trade practices and standards on the 

marketing of a timber product 375 

76. Role of product differentiation in forest-products 

marketing 376 

77. Stocks of a forest product 376 

Prices — static aspects 381 

78. Current prices of raw timber products 381 

79. Price relationships of joint forest products 385 

80. Price structure of a forest product 386 

81. Geographical structure of forest-product prices. 393 
Prices — dynamic aspects 397 

82. Long-term movements in price of a forest product 398 

83 . Short-term movements in price of a forest product 402 
83a. Competitive prices in a forest-products industry 403 
83b. Monopolistic prices in a forest-products industry 404 

84. Governmental price fixing in a forest-products in- 

dustry 406 

85. Effects of price history on a forest-products indus- 

try 4H 

86. Price forecasts for a forest product 415 

Requirements 417 

87. Trends in consumption of a forest product 418 

8 8 . Forecasting consumption or production of a forest 

product 422 

89. Short-run consumption or production goals for 

forest products 423 

90. Long-run goals for timber production 425 

VII. Demand for Forest Products 427 

91. Consumer preferences involving forest products . 429 

92. Demand functions for forest products 433 

93. Consumer demand for a timber product 434 

93a. Wood substitutes and the demand for forest prod- 
ucts 438 

93b. Trade promotion as a factor in demand for a 

forest product 443 

93c. Impact of wood technology on demand for a for- 
est product 443 

94. Demand for forest recreation 444 

95. A demand forecast for a forest product 446 



VIII. Forest-Economics Research in the United States 448 

Research agencies 449 

Subject matter 450 

Regional differences 455 

Research workers 456 

Duration and trend of studies 459 



CHAPTER I 

Introduction 

The forests of the United States provide raw materials and 
energy to nourish the national economy. The growth and vigor of 
the nation depend heavily on how these natural resources are 
used. Because forests are one of the major resources, studies of 
their economic significance and of how to use them more effectively 
are important to national welfare. Moreover, the rising trend of 
domestic and world population makes improved forest-resource 
utilization more urgent than ever before, and the emerging power 
of modern technology makes the problem of such use more com- 
plex. Success in solving it will require both a high order of judg- 
ment on the part of those responsible for decisions affecting forest 
use and a broad understanding of the facts and relationships which 
should govern these decisions. 

Research in the economics of forestry has a growing role to play 
in better forest-resource decisions. A purpose of this book is to 
encourage more effective research in forest economics by directing 
attention to its scope and methodology and by stimulating 
thought on how to improve research. This can best be accom- 
plished by considering actual research problems. But before turning 
to them, something should be said of the general background 
against which forest-economics research is to be viewed. 

FOREST ECONOMICS IN THE UNITED STATES 

William A. Duerr 

When there was plenty of forest in everyone's back yard, the 
economics of using it was simple; and of growing it, nonexistent. 
Only as forests became scarce was there any reason to economize 
them. 

As new land in the United States was opened to acquisition, 
exploitation, and settlement, there arose problems of forest-land 
use and ownership. The westward movement of the virgin timber 
frontier created problems of transportation and rising prices. 
Forest depletion brought the need and some incentive to practice 
silviculture. Mounting requirements for forest range, water sup- 
plies, recreation, and wildlife gave rise to problems in producing 
these commodities and services of the woods. The progress of 



2 RESEARCH IN THE ECONOMICS OF FORESTRY 

American industry brought to forestry both innovations and prob- 
lems in productive technology, labor relations, and markets. The 
wide ups and downs of the growing economy reacted with increas- 
ing force upon employment, output, and income from forests and 
forest industry. 

In such problems as these the economics of forestry in the 
United States originated. As the forest economy grew, there was 
increasing need to examine its characteristics, analyze its prob- 
lems, and appraise its effectiveness as a social institution — that is, 
there was increasing need for research in the economics of forestry. 
As this research analyzed and interpreted the unfolding history 
of the economy, a body of knowledge developed which has proved 
useful in understanding the forest economy and in making it 
operate more effectively. Such knowledge, consisting of facts, 
principles, and tools of analysis, constitutes the discipline of forest 
economics. Taken together, the research into the problems of the 
forest economy and the discipline which synthesizes what is known 
about that economy comprise the economics of forestry. 

EARLY YEARS 

It was the problem of the timber supply that first lent purpose 
to the economics of forestry in the United States — the same prob- 
lem that in the last quarter of the nineteenth century provided 
the stimulus for the national forestry movement itself. The 
changes that led to the isolation of an economics phase out of the 
general body of forest-conservation activity were scarcely percepti- 
ble. The economics of American forestry was born during the first 
decades of the present century when a significant portion of 
conservation sentiment — the interest in trees and woodlands for 
their own sake — crystallized into a concern for the allocation and 
use of these resources for the greatest well-being of men and 
women, and a desire to obtain the factual data of the timber 
situation. 

The economics of forestry, indeed, was christened in a shower 
of data. And it grew up amidst the collecting and compiling of 
statistics — on forest acreage, ownership, timber volumes, growth, 
output, prices, shipments, manufacture, values, trade, require- 
ments, consumption. Much amassing and some analysis of such 
data constituted the first major projects in the field. 

The groups that did this work were mostly within the federal 
agencies, among which the Forest Service and bureaus in the 
Department of Commerce were the leaders. But public agencies 



INTRODUCTION 3 

in the states, too, made surveys. And some of the industry associ- 
ations and individual firms collected data, especially resource data, 
that contributed much to factual knowledge of the forest situation. 

Workers in the economics of forestry have often been criticized 
for their preoccupation with mere data. It is certainly true that 
fuller analysis of statistics and greater attendant efforts to build 
some coherent principles of forest economics would have paid 
good dividends. However, the direction first taken by workers in 
the new field is surely no cause for embarrassment or regret. The 
first job was to uncover the facts. This job is not finished, nor will 
it ever be, for the facts of the economy and society are continually 
changing. Data-gathering, therefore, will always be a part of the 
economics of forestry. This is not, of course, to say that it can be 
an independent part, or that analysis of the data need be 
neglected. 

Arising out of specific American problems, the economics of 
forestry in this country was from the first a domestic product. In 
this it differed from American silviculture, which was, in its origi- 
nal form, imported from abroad. Research in the economics of 
forestry has developed with the economic problems of forestry and 
forest industry, with an inevitable lag behind these problems. 

Events that followed World War I produced marked changes in 
the economics of forestry. With the exhaustion of most of the best 
timber in the South, the focus of forest industry was moving to the 
West Coast. The East as a whole became more conscious of its 
forest depletion. The national issues of forest conservation were 
revived in new form. In the South, second-growth pine was, here 
and there, already making an impressive showing. In the North- 
east, continually rising prices of timber products stimulated inter- 
est in intensive forestry. In the Lake States, from which the great 
body of the lumber industry had long since retreated, leaving 
extreme devastation, people were suffering the hardships of agri- 
cultural disillusionment, tax delinquency, and other maladjust- 
ments of rural land use. In the West, the lumber industry was 
carrying on in the tradition of Paul Bunyan, but with new prob- 
lems of timber utilization, plant and woods operation, labor re- 
lations, and community responsibility. 

These events were the background for a substantial expansion 
of forestry research on all fronts. Along with enlargement went 
increasing specialization of the research. Not long after 1920, the 
economics of forestry clearly emerged as a field of specialization. 
Research in this field entered a new period in its history, and 



4 RESEARCH IN THE ECONOMICS OF FORESTRY 

economic thinking was applied to a widening group of problems in 
forest policy, management, and administration. 

RESEARCH PROJECTS 

One of the distinguishing features of the new period was the 
establishment of large research projects and large groups of re- 
lated studies directed at some of the major economic problems of 
forestry that took form at this time. 

As in the earlier period, the question of the timber supply 
occupied the greatest attention. A sign of the times was the 
nation-wide Forest Survey, started in 1929. Its purpose was to 
determine and analyze timber inventory, growth, drain, and re- 
quirements as a basis for policy aimed at balancing the national 
timber budget. By the time of World War II, the survey had 
covered all or parts of 22 states, comprising about half of the forest 
area of the country. After the war, the survey was resumed, with 
authorization not only to finish the national coverage, but also, as 
a continuing project, to keep the forest facts up to date on areas 
already studied. 

Besides the national survey, a number of projects run by state 
and other groups have contributed to knowledge of forest-land 
resources. Surveys of forests, related vegetation, wasteland, or 
general land-economic conditions were made in the Tennessee 
Valley and in California, Iowa, Ohio, Michigan, and other states. 

Another sign of the times in this era of land-use problems was 
the Forest Taxation Inquiry. Begun in 1926, it was the first of 
the new major projects, and really marked the start of the new 
period in the economics of forestry. Privately owned timber sup- 
plies — the major supplies — were shrinking. Conscious manage- 
ment to rebuild them scarcely existed. What was deterring the 
rise of private forestry? Was it forest taxation, especially the 
general property tax, as the forest-industry apologists and others 
maintained? The Forest Taxation Inquiry was proposed to get to 
the bottom of this question. It was a logical and important ques- 
tion at that time. The agricultural depression of the i92o's, 
enveloping much of the rural economy, emphasized the burden 
of land taxation. Land was being exploited for all it would yield 
at the moment, and a huge aggregate of tax statements was 
going unpaid. 

The Forest Taxation Inquiry played a highly significant role in 
the development of forest economics. It was the first large re- 
search project in the field to be carried through all the stages of 



INTRODUCTION 5 

data collection and analysis and program recommendation and to 
appear in definitive published form.* A great number of re- 
searchers from various fields participated in it, and it was the first 
occasion for American foresters and economists to work together 
on a major job. A generation of students of the economics of 
forestry formed their thinking under the influence of this project. 

Another problem that arose to harass the potential forest 
manager was that of timber marketing. Throughout much of the 
East, timber came to be harvested from small holdings by a 
multitude of roving operators, who then channeled the products 
into the markets, processing them on the way. This system had at 
least the appearance of inefficiency, and seemed to favor not only 
destructive logging but also poor utilization and low timber prices, 
all of which run counter to the needs of constructive forest 
management. 

The rise of this problem was greeted with some research and a 
great deal of publication on the subject of marketing timber 
products, particularly farm-woodland products. This work recog- 
nized the great difficulties of farmers in both timber management 
and marketing. In some of the work an attempt was made to 
analyze small owners' handicaps so as to suggest ways to improve 
the systems on which these owners were dependent. One possible 
form of improvement, cooperative marketing, was studied ex- 
tensively. 

Closely allied to this marketing research were a comprehensive 
study of stumpage and log prices and several studies of product 
prices. 

While this research was under way to answer part of the "why" 
of existing private forest-management practices, another line of 
study was already taking shape, aimed at discovering the poten- 
tialities of conservative management. Reasoning that rational 
landowners will do what profits them most, research workers set 
out to answer the question, What will forestry pay? It was felt 
that at least in many areas conservative forest management could 
be shown to pay better than existing practices. While the Forest 
Survey involves research primarily in social economics, and the 
Taxation Inquiry was a mixed study of social and private eco- 
nomics, this research in forest management dealt mainly with the 
economics of the individual firm. 

A variety of management problems was studied from the eco- 

* Fairchild, Fred Rogers, and associates: Forest taxation in the United States; 
U. S. Dept. Agr. Misc. Pub. 218; 681 pp.; Washington, 1935. 



6 RESEARCH IN THE ECONOMICS OF FORESTRY 

nomic point of view, and by a variety of agencies. There were 
"logging and milling studies" aimed at learning the effect of log 
and tree size upon the profit of an operation. There were case 
studies attempting to determine or forecast, by spot observations 
and a little historical data, whether and what kind of forestry 
would pay. Great attention here was given to the farm woods, and 
some progress was made in selling the idea that forestry is part of 
the farm business. 

The highest development of this forest-management research 
has come on those permanent experimental forests where running 
records are kept of the costs and returns of given silvicultural and 
utilization programs. Private forest owners, forestry schools, and 
state forestry groups have all had a hand in such research. The 
U. S. Forest Service, in its experimental-forest program, is taking 
an active part. Greatest progress in demonstrating opportunities 
for private profit has been gained in the South and some other 
parts of the East, where timber growth is rapid or markets good 
and there is no longer a ready-made reserve of virgin forest. 

Timber, however, was not the only forest resource whose supply 
problem gave rise to major economic research projects. Problems 
of water supply, in both their flood-control aspect and their 
water-consumption and power aspects, received heightened at- 
tention beginning in the public-works era of the 1930's. An 
important part of the attendant research was the evaluation of 
costs and benefits of various measures wherein forest lands, as 
the source of much water, entered prominently. Again, the supplies 
of forage on western forest ranges received wide public attention, 
especially during late years of high meat prices and heavy pressure 
from livestock interests for continued intensive use of depleted 
ranges. This problem has both social and private economic aspects 
calling for research. 

PROBLEM ANALYSIS AND PLANNING 

Another of the distinguishing features of the new period in the 
economics of forestry was the rise of problem analysis. This was 
significant because it marked the entry of forest economics into a 
fresh stage of its development. With a rapidly accumulating fund 
of facts and a growing corps of trained personnel, work of a higher 
order could now be undertaken, geared to the need for more 
sharply defined policies. This new capability strengthened the link 
between forest-economics research and forest policy. Of foremost 
importance was that aggregate of effort within the U. S. Forest 



INTRODUCTION J 

Service that resulted, in 1933, in the Copeland Report: A National 
Plan for American Forestry. 

The Copeland Report project was one of compiling and digest- 
ing what was already known, and only small parts of it were, 
strictly, the economics of forestry. And yet, as the most compre- 
hensive problem analysis of American forestry ever undertaken, 
the Copeland Report was of profoundest significance to forest- 
economics research. It pointed up major questions upon which 
research of an economic character was needed. More importantly, 
it demonstrated that the materials, techniques, and personnel of 
forest-economics research have a key function in general problem 
analysis in forestry — analysis of the interactions of forests, farms, 
industry, and people in a broad economic and social setting in 
order to form the basis for policy in both research and other action. 
This fact had been suggested in the less comprehensive national 
studies that antedated the Copeland Report, principally the 
Bureau of Corporations and Capper projects, for which the final 
reports were published in 1913-1914 and 1920. It was confirmed 
in two studies that followed: the Joint Congressional Committee 
study, 1 941, and the Forest Reappraisal project, 1948. Along with 
these efforts in the timber field should be mentioned that analogous 
effort in range problem analysis, The Western Range * 

During the agricultural and general depressions of the i92o's 
and 1930's, rising interest in land-resource utilization and eco- 
nomic planning led the economics of forestry — arwJntegral, but 

often not distinct, part of such work — into new and wider fields. 
Local and state planning, land zoning, and land-utilization re- 
search; the agricultural planning program of the U. S. Bureau of 

* The publications referred to in this paragraph are as follows: 

U. S. Dept. Commerce and Labor, Bureau of Corporations: The lumber in- 
dustry; 3 vols.; Washington, 1913-1914. 

U. S. Dept. Agriculture, Forest Service: Timber depletion, lumber prices, 
lumber exports, and concentration of timber ownership; Report on Senate Res. 
311; 71 pp., Washington, 1st ed. 1920. 

U. S. Dept. Agriculture, Forest Service: A national plan for American for- 
estry; 73rd Cong., 1st Sess., Senate Doc. 12; 1677 pp. (2 vols.); Washington, 
1933. 

U. S. Congress, Joint Committee on Forestry: Forest lands of the United 
States; 77th Cong., 1st Sess., Senate Doc. 32; v, 44 pp.; Washington, 1941. 

U. S. Dept. Agriculture, Forest Service: Forests and national prosperity: a 
reappraisal of the forest situation in the United States; U. S. Dept. Agr. Misc. 
Pub. 668; vii, 99 pp.; Washington, 1948. 

U. S. Dept. Agriculture, Forest Service: The western range; 74th Cong., 2nd 
Sess., Senate Doc. 199; xvi, 620 pp.; Washington, 1936. 



8 RESEARCH IN THE ECONOMICS OF FORESTRY 

Agricultural Economics and the state colleges; the studies of the 
National Resources Planning Board; the postwar-planning work 
of the U. S. Department of Agriculture and the states — these and 
other programs produced much of significance to the economics of 
forestry and served to broaden its horizons. One primary aim of 
such work was to seek out solutions to the grave problems of 
poverty and idleness of rural people and rural resources, including 
forests. 

In the broader sense of the term planning, all the major forest- 
economics projects mentioned above were related to some form of 
planning activity — planning the management of firms in forest 
industry, planning the use of forest land, planning the design of 
public policy, etc. Planning in this sense is one of the threads 
that runs through the whole fabric of forest economics. 

ECONOMICS IN A CHANGING ECONOMY 

Considering its close relation to forest policy, it is to be expected 
that the economics of forestry in the United States has been 
strongly influenced by the public thinking of the times. 

In their early concern for the timber supply, the attention of 
forest economists was focused upon the denudation of private 
industrial forests and upon the industrial institutions and policies 
that led to action contrary to the public interest. Meanwhile 
national policy had confirmed the place of forestry as a part of 
agriculture in the United States, and increasing economic thought 
was devoted to the problem of farm forests, though the farmer 
who allowed his lands to be denuded was regarded with more 
tolerance than was accorded the industrial landowner. In its 
concentration upon these two great groups of forest owners, forest 
policy and economics up through the 1930's nearly overlooked a 
third major class of ownership as widespread as any: the "miscel- 
laneous" group, composed mostly of small holdings owned by 
people of widely varying occupations other than farming and 
timber processing. 

By the middle 1940's, however, the Forest Reappraisal project 
had completed a nation-wide survey of forest ownership and 
timber-management practices. This survey revealed that among 
private forest owners the best management was being practiced by 
the large industrial owners. Small owners, both farm and "miscel- 
laneous," were as a class and in all regions managing their forests 
poorly. Thus attention shifted in considerable measure to the small 
private owner as the focus of the forest-management problem. 



INTRODUCTION 9 

Throughout these various shifts in emphasis, the economics of 
forestry on public lands was relatively neglected. In the 1940's, 
however, when the timber-supply pinch was widely recognized 
and keenly felt, some attention was turned to the problem of 
opening up more of the public forests to logging and of intensifying 
their management. 

Up until World War II, the economics of forestry in the United 
States had passed the great part of its formal existence amid 
rural depression. The concept of forests as a source of rural 
employment became deeply ingrained in the thinking of those 
who worked in the social phases of the field. With the appearance 
of labor shortages during and after the war, it was necessary to 
reorient drastically this thinking — away from employment and 
the virtues of work toward the efficient use of labor and the virtues 
of technological progress. At the same time the study of potential 
timber requirements took on more meaning. The estimates made N 
during the previous decade, of the high requirements of an eco- 
nomically healthy nation,, no longer seemed so visionary as they 
once had. 

These events illustrate the changeability of the complexion of 
forest economics. Although the biological and engineering parts 
of the field serve as strong stabilizers, the economics of forestry 
must still respond to the fluctuating circumstances of men. I 

NEED FOR DEFINITION 

Forest economics as an area of science has developed rapidly 
during the last half century, but is still immature. This immaturity 
has three aspects. First, the content or scope of the field has yet 
to be clarified. Such clarification should consist not of demarcating 
boundaries, which at best would be of transitory value, but 
rather of exhibiting the principles that can weld forest economics 
into a coherent unit. Second, its function is as yet imperfectly 
recognized. What role should be played by the economics of 
forestry in shaping forest policy or in setting the course for re- 
search and for administrative action? To what other ends should 
its determinations and analyses of the facts and tendencies of 
forestry be directed? Third, its research method remains un- 
systematized. The social sciences can be drawn upon liberally for 
research methods applicable to the economics of forestry, but the 
process of adapting methods has been random and incomplete. 

These three aspects of the economics of forestry — function, 
content, and method — are the subject of this book. They are intro- 
duced in the next three sections of this chapter. 



IO RESEARCH IN THE ECONOMICS OF FORESTRY 

FUNCTION OF FOREST-ECONOMICS RESEARCH 

Samuel T. Dana 

The function of forest-economics research is to provide owners, 
administrators, legislators, and the general public with the basis 
for intelligent decisions on the economic aspects of managing 
forest lands and utilizing their products and services. Forest- 
economics research does this by obtaining, analyzing, interpreting, 
and evaluating facts having economic significance. The facts may 
relate to the management of a single forest property, or they may 
provide the basis for the adoption of state, national, or world 
forest policies. 

COMBINING ECONOMICS WITH TECHNOLOGY 

Much of forestry subject matter is technological. Silvicultural 
techniques are designed on the basis of knowledge drawn from 
numerous fields of natural science such as plant physiology, 
geology, hydrology, chemistry, and physics. They make use of 
engineering and mathematics. But though an entire structure of 
forest management can thus be erected on a technological base, it 
remains only a blueprint, without functional significance, until it 
is applied in practice. Every step in the processes of forest manage- 
ment and utilization necessarily involves economic factors. Prob- 
lems dealing with the proportioning of land, labor, and capital, 
with supply and demand, with costs and returns, with prices and 
markets are ever present. 

Biological and engineering knowledge is essential for the success- 
ful practice of forestry, but no more so than economic knowledge. 
What species to favor, what system of cutting to use, what product 
or service to emphasize, what method of logging to employ, how 
intensive a system of fire control to install, how far to go in public 
ownership or regulation cannot be decided on biological or en- 
gineering grounds alone. 

Before technical principles can be put into effect in the woods 
they must be tested, not in terms of their validity as statements of 
objective truth, but in terms of how they will affect the progress 
of individuals and of social groups toward particular goals. Of the 
many alternative lines of action which are nearly always available, 
the one actually chosen will depend largely on the probable eco- 
nomic consequences of the choice. It is the function of research to 
see to it that those who make the decision have as complete and 
accurate knowledge as possible of all relevant economic factors. 



INTRODUCTION II 

ASSESSING AN UNCERTAIN FUTURE 

Many of the factors with which forest economics must deal are 
in a constant state of flux. The cost of lumber, for example, may be 
influenced by the introduction of new methods of thinning, log- 
ging, transportation, or milling. Its selling price may be influenced 
by changes in building construction, by competition from other 
materials, or by the development of new uses for material now 
wasted in the woods or at the mill. Changes in the tax structure or 
in the credit system may influence greatly the relative advantages 
of private and public ownership of forest land. Foreign economic 
policies or international economic arrangements may directly influ- 
ence international trade in forest products and indirectly influence 
patterns of land utilization. 

This element of change is of course not confined to the field of 
economics. It is, however, particularly prominent there because 
of the fact that economics, like the other social sciences, is con- 
cerned with human relationships and institutions, about which 
there is nothing static. The new knowledge that is continually 
being acquired in the biological and physical sciences does not 
mean that natural laws are changing but merely that more is 
being learned about them. And as more is learned, ways are found 
to apply that knowledge in new biological and engineering tech- 
niques that in turn have economic consequences. The findings of 
research in forest economics therefore must be accepted and used 
with full understanding that they are subject to change as man 
learns more about nature and as he modifies his own institutions. 

The factor of economic change is particularly important in 
forestry, which is so largely concerned with the future. Of course, 
land utilization in any form, whether it deals with the production 
of cultivated crops, forage, wildlife, forests, or minerals, neces- 
sarily looks forward. However, shifts from one cultivated crop to 
another, or from crops to pasture, or from pasture to crops can be 
effected relatively quickly and easily. Wildlife populations fluctu- 
ate markedly over short periods. Mining can often be started or 
stopped with comparatively little delay. But forestry must look 
further into the future because quick changes are often impossible. 

In forestry, the difficulty of making radical changes in policy or 
practice is greatly magnified by the time required for forests to 
mature. Even a drastic change in management objectives and 
practices will not be reflected in forest conditions overnight. Any 
plan of management, whether of a virgin forest, second-growth 



12 RESEARCH IN THE ECONOMICS OF FORESTRY 

forest, or plantation, is based on an estimate not only of probable 
growth but of probable returns and costs when the product is 
finally harvested. It is therefore of the utmost importance that 
plans be prepared and periodically revised on the basis of the most 
reliable economic data and forecasts that research can provide. 

The question is not whether economic analysis can, in a chang- 
ing economy, give highly accurate forecasts on which to base 
plans. It is whether economics can give a better answer than 
would otherwise be obtainable. This giving of better answers is a 
primary function of forest-economics research. 

APPRAISAL OF VALUES DIFFICULT TO MEASURE 

Another feature of forest-economics research is that it must 
often deal with values which are not accurately measurable in the 
present state of knowledge. The way in which a particular forest 
is handled may influence the supply of water for power, irrigation, 
municipal use, or navigation hundreds of miles away. What is the 
financial value — positive or negative — of that influence? What 
additional costs, if any, are involved in managing the area so that 
it will exert the optimum influence on the water supply as com- 
pared with managing it for some other primary objective? What 
bearing does the fact that the benefits of watershed protection are 
normally enjoyed by someone other than the owner of the forest 
have on the relative desirability of private or public ownership? 
These are questions of policy and practice that must be answered 
with respect to the management of practically every forest in 
hilly country. 

The value of shelterbelts is generally recognized, but the expres- 
sion of that value in economic terms is exceedingly difficult. What 
is a shelterbelt worth with respect to such items as net increase in 
the production of harvested crops, protection of livestock, pre- 
vention of wind erosion, reduction of snow drifting, and general 
improvement in the"livability" of the area? What costs of shelter- 
belt establishment and maintenance are justified by these values? 
Do the values have sufficient community significance to warrant 
public participation in meeting the costs, and if so, to what extent? 

There is a growing awareness of the value of forests for recre- 
ational purposes — hunting, fishing, camping, motoring, hiking, 
and the inspiration of communing with nature in "God's first 
temples." More and more pressure is being put on public agencies 
to emphasize these activities in the management of publicly 
owned lands, and private owners interested primarily in timber 



INTRODUCTION 13 

production are nevertheless often expected to permit recreational 
use of their lands by the general public. 

Here again questions of policy and practice involving economic 
considerations are involved. Many recreational values, such as 
physical upbuilding, mental stimulation, and spiritual inspiration, 
are impossible of translation into dollars and cents. But there 
must be some limit to the amount that can be spent to provide 
the environment in which they can be enjoyed, and research must 
play a part in determining that limit. 

A point is reached, however, where forest economics is restricted 
as an evaluative tool because it examines only those values which 
are measurable in monetary terms or their equivalent. Accord- 
ingly, the forester may often need to go beyond economics. In 
reaching his final judgments, disciplines such as political science, 
philosophy, and others concerned with man in relation to his 
environment may be equally essential with economics. 

FACTS AND ANALYSIS, NOT DECISIONS 

In conclusion, it should be emphasized that the function of 
forest-economics research, as of any other research, is to provide 
the basis for decisions on policy and management, not to make 
them. It is the responsibility of the investigator to get the facts 
and to point out what they mean. It is the responsibility of the 
general public, their legislative representatives, and of forest 
owners and managers to decide what policies and practices to 
adopt in the light of those facts. 

Wise decisions will be reached only if full and intelligent use is 
made of information provided through the natural sciences, the 
engineering sciences, and the social sciences. Forest economics, as 
a meeting ground of these sciences, occupies a place of great 
importance. 

CONTENT OF FOREST ECONOMICS 

Henry J. Vaux 

Sustained consideration of American forestry problems began 
about seventy-five years ago. Almost from the first, the literature 
made reference to the "economics of forestry." Some of the earliest 
discussions of forestry as an area of thought and action recognized 
" forest economics" as one of four subdivisions of the subject, 
coordinate with forest protection, silviculture, and utilization. 



14 RESEARCH IN THE ECONOMICS OF FORESTRY 

Indeed, reflections of this fourfold classification often appear in 
contemporary forest research, administration, and education. 

But, as already noted, the development of forest economics as 
a discipline with recognizable boundaries, characteristics, func- 
tions, and concepts was, for a good many decades, rather slow. 
The rate of progress was significantly less rapid than that of com- 
panion aspects of forestry. The reasons for this were inherent in 
the historical development of forestry itself. Considerable knowl- 
edge of technical aspects of forestry was prerequisite to the growth 
of economics since these fields had to provide the technical data 
necessary for economic analysis. This accounts not only for the 
timing of the growth of forest-economics study, but also for certain 
changes which have taken place in the scope and content generally 
ascribed to the field. 

CHANGING DEFINITIONS 

About 1900, forest economics was authoritatively described as 
including ". . . such information as will enable [one] to form an 
intelligent view and a true estimate of the position which forests 
and forestry should occupy in our political household, or rather 
the position which the community and governments should take 
with reference to their forest resources; it is to furnish a trust- 
worthy basis for formulating public policy."* 

Under this philosophy the primary reference of forest economics 
was to public policy. Its approach was broadly institutional, and 
on occasion there was no hesitation in going beyond the scope of 
conventional economics in deriving criteria for the evaluation of 
social needs. 

The contemporary concept of forest economics is in one respect 
narrower and in another broader than that of the first-generation 
American forester. It is narrower in the sense that it confines 
itself to analysis in terms of established economic criteria. Al- 
though it may include, as with Fernow, problems of " the position 
which the community and governments should take," forest eco- 
nomics today provides only part of "a trustworthy basis for formu- 
lating public policy." It provides the part which rests on values 
measurable in monetary terms or their equivalent. But it is recog- 
nized that policy decisions frequently depend on extra-economic 
considerations as well. Forest economics serves as the hand- 
maiden of policy by presenting objective interpretations of those 

* Fernow, Bernhard E.: Economics of forestry; xii, 520 pp.; New York, 1902; 
p. vii. 



INTRODUCTION 1 5 

aspects of policy problems which are subject to measurement by- 
economic yardsticks. But other fields of social study such as 
political science, sociology, and psychology have roles coordinate 
with its own in respect to the decisions which ultimately determine 
what public policy will be. 

Contemporary forest economics has been broadened to recog- 
nize more clearly that it also has functions on behalf of business 
men and other private decision makers. These functions now com- 
mand attention which is commensurate in scope and importance 
with functions on behalf of public policy. Forest economics is thus 
concerned with the economics of private forest enterprises, not 
only as a means of clarifying the foundations of public policy, but 
also as an end in itself. 

WHAT IS THE ECONOMICS OF FORESTRY? 

The concept of forest economics which underlies this volume 
may be clarified by definition of the component terms economics 
and forest. Economics is concerned with problems of allocating 
productive resources among the several alternatives which may 
be available, so as to maximize the net monetary and other returns 
obtained from them. The resources involved are all those personal 
and material agents which may be used in some way to produce 
goods or services usable by mankind. The maximization of all net 
returns to these resources is not an absolute phenomenon. It is 
significant only in relation to some particular social group. Thus, 
in considering alternative returns, the treatment which economics 
gives to the several classes of net incomes will be governed by the 
nature of the social group from whose viewpoint evaluation is 
being made. The timing of income, its distribution among indi- 
viduals, and even the kinds of incomes and costs to be considered 
will thus vary in accordance with the nature of the group chosen 
as a reference for the economic analysis. But once this basic term 
of reference has been established, economics is concerned with 
objective comparisons of cost/return alternatives. 

The forest represents one particular class of the productive re- 
sources which have just been mentioned. Although no single defini- 
tion of forest has been generally accepted, there is no apparent 
need for a highly precise terminology in this respect. The notion 
of a forest as a tract of uncultivated land more or less covered 
with trees or shrubs serves to indicate the essential limitations 
which need to be recognized. 

Forest economics is thus concerned with problems of allocating 



1 6 RESEARCH IN THE ECONOMICS OF FORESTRY 

productive resources so as to maximize the returns from them, 
wherever the use of forest resources is involved. It is comparable 
to the parallel fields of labor economics, agricultural economics, 
and land economics, in that it is oriented toward those problems 
which are characteristic and significant in the use of a particular 
class of productive resource. 

Since forest economics enters into the solution of all of the 
forester's practical problems, the boundaries of the field are co- 
extensive with those of the whole of forestry. They parallel those 
of each of the technical subdivisions, from forest soils to wood 
chemistry, and from animal ecology to aerial photogrammetry. 
The very nature of the evaluative process with which economics is 
concerned implies that it must be closely integrated with all 
technical phases of the problems with which it deals. 

Although this definition of forest economics focuses attention on 
problems of the forest, it does not assign to the forest or to forest 
uses a preferred position vis-a-vis other resources and uses. It is 
not a " special" economics, applicable only to forest problems. It 
embraces all economics insofar as the latter has anything to say 
relevant to problems of the forest. And its basic criteria, concepts, 
and methods of analysis are in no fundamental way different 
from those of economics at large. 

Moreover, to say that forest economics is oriented to problems 
of forest-resource use is not to mean that the field is restricted to 
the economics of forest production. Many problems which signifi- 
cantly affect forest-resource allocation and the maximizing of 
returns from forests may be far removed from the forest in the 
chain of economic organization. For example, optimum resource 
allocation cannot be determined without a clear understanding of 
the economics of consumption of wood, particularly of significant 
trends affecting such consumption. Hence, forest economics may 
be concerned with segments of the field customarily regarded as 
the economics of consumption. 

Forest economics thus embraces the whole range of economic 
activities insofar as they bear on the use of forest resources — that 
is, parts of the fields of consumption, distribution, and processing 
of the products of the forest, as well as forest production and use. 
To spell out its content in further detail would in large measure 
duplicate the rest of this book. But enough has now been said to 
suggest that the subject matter of forest economics has unity. It 
embraces any information which should be considered in determin- 
ing how to use forest resources and how to combine them with 



INTRODUCTION 1 7 

nonforest resources in order to maximize the total net returns 
obtainable from the economy. 

WHY A SPECIALIZED ECONOMICS? 

The distinctive characteristic of forest economics is found less 
in its subject matter than in its orientation and its approach. The 
forest economist may join with other kinds of economists in study- 
ing certain types of consumer demand — say, for housing. But he 
does so for the specific purpose of learning something which may 
be useful in achieving more effective allocation of forest resources 
in the light of consumer wants. This may or may not give his 
analysis of the demand problem a form which distinguishes it 
from analyses of similar ground by other economists. But regard- 
less of the form of analysis or of the title of the analyst, any 
study in the entire field of economics which yields data significant 
to the problem of forest-resource allocation is within the scope of 
forest economics. 

If, as the above discussion suggests, forest economics consists 
solely of the forestry aspects of the entire economic system, the 
reader may ask why forest economics should be recognized as a 
distinct discipline. Part of the answer lies in three characteristics 
of forestry which serve to distinguish it in economic terms from the 
great bulk of activities covered by the economy at large. The first 
two of these characteristics involve distinctive features of forest 
production; the third, distinctive features of the values produced. 

First, the fact that forests have far longer production periods 
than those commonly encountered in other lines of economic 
activity has profound economic implications. " Long-run" supply 
and demand adjustments in many agricultural and industrial 
commodity markets may take place within a period of very few 
years. As a result, certain types of market imperfection and 
"stickiness" of economic response may be of such transient im- 
portance that they can be overlooked in economic analysis. Com- 
parable adjustments in a timber market, however, may require a 
minimum of several decades before they make themselves felt. 
Under such conditions economic imperfections and lags in response 
which are of minor consequence in the economy at large may well 
comprise some of the most important and critical problems of 
forestry. 

Second, standing timber plays a role in production economics 
which is rare among economic goods. Much standing timber can 
be, and is, considered alternatively as either capital plant or finished 



1 8 RESEARCH IN THE ECONOMICS OF FORESTRY 

product. This dual economic role can be analyzed only by methods 
which are not commonly needed elsewhere in economics. 

The third distinguishing characteristic of forestry lies in the fact 
that a substantial proportion of the values produced by the forest 
are not directly measured by existing markets. (It is important to 
note that this does not necessarily mean that these values are not 
measurable in monetary terms or their equivalent.) In part, this 
is a result of the particular institutional environment within 
which it has been customary to provide certain forest services, 
such as recreation, outside of the conventional market framework. 
In part, also, it results from the fact that certain forest values, 
such as those of watershed protection, can be measured only in- 
directly, through rather complex analysis. 

Even if these distinctions did not exist, operation of the principle 
of specialization of labor would inevitably lead to the development 
of a field of forest economics. One-third of the land area of the 
United States is forest land. This fact alone insures the existence 
of a large volume of forest problems. The general economist is 
handicapped in his approach to such problems, in part by their 
specialized characteristics noted above, and in part by the fact 
that the forest industry is marked by tremendous variability in 
its organization and by institutions, techniques, and terminology 
which are not often encountered elsewhere. These peculiarities of 
the industry serve to repel the generalist and attract the specialist, 
thus fostering the development of a group of students who confine 
their attention to this particular area of economic activity. So 
long as these technical and institutional characteristics continue 
to distinguish the forest economy from the economy at large, the 
special orientation and emphasis here defined as forest economics 
will prove useful. 

RESEARCH METHODOLOGY IN THE ECONOMICS 
OF FORESTRY 

John D. Black and Henry J. Vaux 

The purpose of this section is to point out the major kinds of 
research methodology applicable to the economics of forestry, 
methods which will be represented in the research topics of the 
following chapters. How does the researcher go about his job? 
What general procedures does he use? What are some of the pe- 
culiarities of forest-economics research problems which affect his 
methodology? The answers to these and related questions may 



INTRODUCTION 19 

help the reader to visualize more clearly the methodological simi- 
larities among individual research studies which characterize the 
field. 

Like research in other social sciences, forest-economics research 
is here envisaged as consisting of five steps: (a) selecting and 
formulating the research problem, (b) choosing hypotheses, (c) 
selecting and organizing data, (d) testing the hypotheses by means 
of the data, and (e) drawing useful inferences from verified hy- 
potheses. As will appear, many valuable research projects have 
been completed in which one or more of these steps receives little 
or no direct emphasis. Moreover, the several steps are inextricably 
interwoven in research practice. However, it is helpful to consider 
each step separately and in logical sequence in exploring the 
nature of research methods. 

SELECTING AND FORMULATING THE PROBLEM 

Most of the general considerations involved in selecting the 
problem to be studied have been discussed in connection with the 
function and content of forest economics. Usually the researcher 
will need to devote some time to developing a careful statement of 
what the problem is. An inadequate formulation of the problem 
is frequently the cause of ineffective research. Indeed, where 
problem situations are complex or obscure, the task of selection 
and formulation may become a research job in its own right. Such 
problem analyses are discussed in more detail in topic 12. The 
ultimate test of adequate selection and formulation is whether 
solution of the problem as formulated will provide a usable guide 
to some purposive action. 

SELECTING THE HYPOTHESES 

The next step in the research is to think through the relation- 
ships that logically appear to be involved in the problem. The 
theory and principles of forest economics provide the starting 
point. By analyzing the research problem in terms of theoretical 
concepts and relationships, the student can develop extensions, 
refinements, qualifications, and applications of the principles 
which are pertinent to the problem in hand. Statements of this 
sort, derived from theory, but related to a specific problem, are 
customarily called hypotheses. One objective of any research 
project is to test the applicability to the problem of these principles 
or hypotheses. In many cases, a further objective will be to pro- 
vide quantitative measures of the hypothetical relationships. 

The hypotheses needed in research vary widely, depending on 



20 RESEARCH IN THE ECONOMICS OF FORESTRY 

the nature of the problem under study. A simple example might 
be the following: "In a given area and over a given time, the 
extent of the effort devoted to timber management is strongly- 
correlated with the size, stability, financial resources, and insti- 
tutional character of the forest ownership." The hypothesis states 
— or infers — the variables to be used — extent of expenditure on 
fire control, methods of cutting, size of holding, length of 
tenure, etc. — and identifies the form of the relationship between 
the several variables. It thus provides the framework around 
which the research will be built. 

As the researcher analyzes his problem, he will usually develop 
a number of alternative hypotheses from which a few must be 
selected for formal testing. He bases his selection on his back- 
ground knowledge of the problem, choosing those which appear 
most likely to be applicable. Here the student's familiarity with 
the general conditions surrounding the problem, with all available 
secondary data dealing with it, and with existing research on 
comparable problems in other areas provides important guides. 
By selecting appropriate hypotheses at the start and by designing 
the remaining steps in the research to fit them, the student can 
save a vast amount of aimless assembling of facts and figures. He 
can avoid the collection of facts for facts' sake that is so common 
in new fields of research. 

The worker will often modify the hypotheses as the study pro- 
gresses. As additional information is gathered and analyzed, the 
need for changes in the initial hypotheses may become apparent. 
The data may even suggest or support some hypothesis which the 
student did not have in mind when the study was designed. Thus, 
although the selection of hypotheses is one of the initial steps in 
the conduct of research, it is not confined to the early stages of the 
work. It is something that should go on continually until the 
study is completed. 

SELECTING AND ORGANIZING THE DATA 

Next, the student needs facts against which to test his hy- 
potheses. One of the principal methodological difficulties in re- 
search arises here. The worker is surrounded by a welter of facts so 
numerous that he cannot hope to examine all of them. Accord- 
ingly, he must select for use only certain ones. The way in which 
the selection is done is critical, because improper selection may 
yield distorted or incorrect results. The guides used in the selection 
of data are therefore of the greatest importance in determining 
the quality of the research. 



INTRODUCTION 21 

Certain boundaries of the universe of fact to be examined are 
prescribed, of course, by the problem under examination. The 
scope of the problem usually limits consideration to a certain 
area, a certain period of time, and certain specific variables. The 
chosen hypotheses will further define these limits. But within 
this universe of pertinent facts, further selection is usually re- 
quired. Selection is directed at obtaining those facts which are 
(a) critical indicators of the relationships being studied and (b) 
representative of those relationships. For example, in a study of 
tree margins, one might select for examination the determinants 
of stumpage prices, the extent, quality, and accessibility of the 
timber sold, the price paid for it, the economic characteristics of 
the buyer and the seller, and the nature and extent of wood 
processing plants. Site quality, the nature of the forest manage- 
ment which produced the timber, and costs of fire protection and 
property taxation might be much less significant, and facts of 
these classes would be ignored. Similarly, in choosing stands for 
study of the economics of timber harvesting, those which involve 
unusually difficult or easy logging chances might be ignored as not 
being representative of stands as a whole. 

The facts reflect events or sequences of events. It is a basic 
characteristic of social science that rarely, if ever, do two events 
of a given class occur under identical circumstances. In view of 
this difficulty, the research worker may proceed along either of 
two lines in his selection of facts. He may examine only certain 
facts about a relatively large group of events, through a survey; 
or he may examine a much larger variety of facts about a limited 
number of events, through case studies. 

If he adopts the former alternative, he must disregard certain 
kinds of dissimilarity between events. This may be justified either 
on the ground the dissimilarities, though real, have no significant 
bearing on the problem, or on the ground that their net effects 
on the relationship being studied are such as to cancel each other 
out. Thus the researcher classifies events into groups which are 
similar with respect to the conditions under study, but which may 
be dissimilar with respect to other conditions. He then collects 
facts about such groups of events. This approach is characteristic 
of the survey method. 

The survey may collect data about all the events of the classes 
under consideration. For example, it may record the production 
of lumber, its average mill value, and the change in inventories of 
every small sawmill in a certain county. But such a complete 
enumeration, or census, is perhaps less common than sampling 



22 RESEARCH IN THE ECONOMICS OF FORESTRY 

surveys. These are designed to collect data about only part of the 
events in question, but to do so in such a way that the sample 
data will represent the data for the entire class without significant 
bias. The intensity of sampling may vary rather widely depending 
on the variability of the features being observed, and on the limits 
to " significant" sampling errors which are deemed appropriate. 
One of the important applications of statistical technique to forest- 
economics research occurs here. Statistics supplies powerful tools 
for designing data collection and for testing sample data so as to 
insure that they are unbiased and that they fall within acceptable 
limits of sampling error. 

But in many research problems the student will find that so 
many types of dissimilarity between events are significant for his 
problem that groupings for survey purposes are impossible. For 
example, in a forest area characterized by a large number of farm 
woodlands of relatively uniform size and on farms of similar type, 
major differences in forest management may be apparent. Fre- 
quently these differences may be ascribable to no simple set of 
causes. Credit conditions, tenure status, intelligence of the owner, 
local market variations, and innumerable other factors may have 
a bearing on the problem. Moreover, a particular combination of 
these factors may have very different effects from some other 
combination of the same factors. Here it is necessary that the facts 
of each event be kept separate from those of every other event, 
if the events themselves are to be fully understood. In addition, 
the worker may find that the very differences between events 
which are thus disclosed provide important material for analysis. 
This sort of approach is often termed the case method. In using it, 
emphasis falls on securing as full a description as possible of each 
surrounding circumstance which is relevant to explaining or under- 
standing the case event. 

The basis for case selection will usually be determined by the 
way the research problem has been formulated. If the study is 
concerned with establishing attributes or relationships applicable 
to a substantial number of similar situations, the student will 
attempt to choose cases which are representative of all the situ- 
ations in the group. If the study is concerned with describing and 
explaining relationships between certain variables, he will choose 
cases which exhibit these relationships in their clearest form. Often 
these may be rather extreme cases, not representative of others in 
a general way. For example, the student of factors affecting 
stability of forest-land tenure will ordinarily select for particularly 



INTRODUCTION 23 

close study those cases which display either highly stable or highly 
unstable tenure, rather than cases which are typical of tenure con- 
ditions in the area. In any event, he will need guides to case 
selection which can be set up only in terms of the particular 
problem at hand. Preliminary surveys, or case studies, or other 
types of research may be necessary before such guides can be 
established. 

Once the basis of selecting data has been determined, the re- 
search worker encounters some additional problems characteristic 
of research in the social sciences and inherent in the actual col- 
lection of the information. The problems are of two orders: (a) to 
decide on the most economical manner of data collection and on 
the point at which the costs of collecting additional information 
will exceed the value of such data to the research problem, and 
(b) to determine how accurately the information obtained reports 
the actual facts. In the latter problem, the critical feature is the 
reporter's understanding of what he sees. To the extent that the 
research worker himself is better qualified than someone else to 
understand what he sees, personal observation of the selected 
events by the researcher himself may reduce reporting errors. But 
many types of facts cannot be observed by the researcher. And 
even where they can, the process of data collection may become 
so arduous as to be impractical. Where this is the case, the re- 
searcher may resort to interviews or correspondence with someone 
who has made observations of interest, to field assistants who will 
make observations for him, to account-book or other operating 
records of observations, or to secondary sources of information 
such as the results of other research or statistical compilations. 

As he thus extends his technique of collecting data, the worker 
may obtain more information at less cost, but the likelihood and 
importance of reporting errors may be increased. As the chain of 
individuals through which observations must pass before they 
reach the researcher is lengthened, significant detail may be lost, 
mistakes may creep in, or incompetent observation may distort 
the report. But even more important, through classification, inter- 
pretation, and other inevitable consequences of collecting observa- 
tions indirectly, the data may actually become transformed into 
something other than what they purport to be. In well-planned 
research, every effort is taken to reduce these reporting errors to a 
minimum, through careful definition of concepts, planning of 
questionnaires and interviews, training of field assistants, checking 
of secondary sources against one another, and the like. 



24 RESEARCH IN THE ECONOMICS OF FORESTRY 

It is important for the research worker to recognize the distinc- 
tion between these reporting errors and the sampling errors men- 
tioned in connection with surveys. The two types of error are 
largely independent of each other, and reporting errors are much 
more difficult to estimate and control. A common mistake in re- 
search has been to reduce sampling errors to a low order of magni- 
tude with little regard for the reporting errors inherent in the 
data. Where reporting errors are large, intensive sampling to get 
low sampling errors is wasteful. It may even be misleading, be- 
cause the wide use of statistical techniques in natural science, 
where reporting errors may be insignificant, has tended to give 
the concept of sampling error certain connotations as to accuracy 
which rarely apply in social science. 

After the data have been collected, they must be organized into 
a coherent presentation which will bring out the features signifi- 
cant for the study. Here a variety of techniques may be employed, 
depending on the nature of the problem in hand and the kind of 
data being used. Quantitative data may be organized into budgets 
or operating statements where the unit of study is a firm. They 
may be compiled on maps in the case of geographic study. Tables, 
charts, and frequency distributions may be useful where large 
masses of quantitative data are classified and summarized. Map- 
ping, tabulating, and charting may all be used with attributive 
data as well. Again, statistical techniques are valuable as tools for 
summarizing and giving concise expression to groups of facts. 

TESTING THE HYPOTHESES 

The scientific approach to verifying hypotheses is through an 
appeal to facts: providing the conditions specified by the hy- 
pothesis and testing whether or not the hypothesized relation- 
ships apply. In social sciences, such as forest economics, the 
problem of testing is thus one of how to check hypotheses against 
the facts in a way which conforms to the logical requirements of 
the experimental method. 

In certain cases, verification can be obtained by planned experi- 
ments — e.g., observation of sample plots or of the quantity and 
quality of products recovered from specified quantities and quali- 
ties of raw material processed in a specified way. But where the 
research deals with large numbers of individuals or major segments 
of the social structure, the controlled experimental method of 
natural sciences is impractical. The social scientist then examines 
the record of actual events in order to find instances in which 
the observed conditions conform to those of his hypothesis. The 



INTRODUCTION 25 

hypothesis is tested by determining whether the relationships it 
postulates conform to the historical observation. 

Thus, the hypothesis that the short-run output of lumber is 
responsive to short-run changes in lumber prices might be tested 
by obtaining data from a number of mills showing, by weeks, tht 
average price received and the total production at each mill for 
one or more operating seasons. The degree of correlation observed 
between the price and production would suggest whether the 
hypothesis was valid. This is an illustration of the historical 
method. 

Regardless of whether verification is obtained from a planned 
experiment or a historical one, it is essential that the research 
show as clearly as possible both the conformities and the diver- 
gences between hypothesis and fact. Because of experimental and 
observational errors, some divergence will always exist. Science 
itself provides no standards of how much divergence is tolerable. 
Thus, the ultimate test is whether qualified students of the field 
accept the results as valid, although in practice certain generally 
accepted standards of conformity have been developed. 

Statistical methods provide valuable tools for the testing phases 
of research. They allow the researcher to measure and summarize 
differences. They can thus be used to express the divergence 
between hypothesis and fact. Such expressions compared with a 
generally acceptable standard of conformity, such as a confidence 
limit, provide the significance tests of modern statistics. 

DRAWING USEFUL INFERENCES 

Having verified some hypothesis by comparing it with observed 
events, the final step in research is to draw inferences which will 
serve as guides to individual or group action. The function of 
research as a basis for policy was discussed earlier. It is only 
through inference that research can complete this function. The 
researcher may prove that the marginal tree diameter was 16 
inches on a certain logging operation. But he can only infer that 
the same limit will apply on the same operation in the future, 
even if all apparently relevant conditions remain unchanged. 
Thus, any use of research as a guide to action automatically 
implies at least some degree of inference. The earlier steps in the 
investigation were concerned only with the events of the past. 
Before the research can be useful in planning, these observations 
must be interpreted in terms of what they mean for ordering or 
modifying the events of the future. 

Where the problem involves operating procedures of an indi- 



26 RESEARCH IN THE ECONOMICS OF FORESTRY 

vidual firm, the development of inferences is often designated as 
the synthetic method. As an example, the researcher may collect 
budget data reflecting the results of operating various types of 
combinations of the agents of production in logging. Using the 
budget data, he may then work out the probable results of new 
and untried methods of operation by preparing synthetic budgets 
for hypothetical combinations, using data from the actual ones as 
guides to the expected results. These synthetic budgets are in the 
form needed for planning; hence they fulfill the ultimate function 
of research. They are based on the inference that relations ob- 
served in existing combinations will carry over to the newly con- 
ceived ones — for example, that average truck-travel time over a 
given segment of road will remain the same, even if the number of 
trucks using the road is increased somewhat over the number on 
which time observations were based. 

In the broader context of industry or society at large, the prepa- 
ration of these planning guides may take the form of building 
models of the way in which the industry or society functions. The 
models are based on verified hypotheses as to the way in which 
the structure, or portions of it, have functioned in the past, and 
they serve to put these results of research into a form which is 
significant for action. This model building may differ from the 
synthetic method in that it may involve a greater variety of hy- 
potheses and assumptions and may make freer use of relation- 
ships deduced from principles, rather than verified hypotheses, if 
the latter sort of information is not available. 

RESEARCH METHOD AND RESEARCH PRACTICE 

As has been noted, the several steps just outlined will be inter- 
woven one with another in actual research practice. Some projects 
may emphasize one phase more strongly than others. Certain 
phases, especially the synthetic or model-building phase, may not 
appear at all in the final research report. Such differences will be 
obvious to the reader of the following chapters. 

Moreover, in any research project the several steps will rarely 
be taken independently one of another. As the worker develops 
hypotheses, he may perceive and make useful changes in the 
formulation of his problem. As he collects data and tests hy- 
potheses, he will be led to modify those initially chosen for exami- 
nation, or even to choose new and different ones. This, in turn, 
will force him to select additional facts. Even the "conclusion" 
of any particular project may really be no more than the statement 



INTRODUCTION 2J 

of a further research problem which was not apparent or which 
could not be adequately formulated when the project was begun. 
The researcher may never formally say to himself, "Now I will 
select some data," or "Now I will test a hypothesis." But the 
effective worker will have the several steps continually in mind as 
he attacks each part of his project. 

Any one of the steps outlined above may constitute research in 
its own right. In other words, research will be directed at pur- 
posive action, but many individual projects — e.g., research in 
theory — may be conducted at two or three removes from such 
action. Nevertheless, because of the interrelationship between 
steps, someone who goes through operations which may comprise 
one phase of research may, in fact, not be doing research at all. 
The point is illustrated by data collection. If a worker assembles 
data with a view to helping solve a research problem — i.e., a 
problem whose solution is relevant to deciding some future action 
— he is doing research even though he himself never achieves a 
solution to the problem. Similarly, "theoretical" research may be 
concerned primarily with the generation of hypotheses, or merely 
with refining the principles useful for hypothesis-making. On the 
other hand, the worker who gathers facts as facts, regarding the 
observations themselves as the final justification of the inquiry, 
or who theorizes as an intellectual exercise without regard to the 
reference which his theory has to the world about him, is not 
formally engaged in research. He is a spectator at the game of 
social evolution. The researcher is a vital participant in it. 

Helpful background material may be found in the following 
references: (i) Bye, R. T.: An appraisal of Frederick C. Mills' 
"The behavior of prices;" Social Science Research Council Bui. 45; 
xix, 335 pp.; New York, 1940. (2) National Bureau of Economic 
Research: Economic research and the development of economic 
science and public policy; 25th Anniversary Series, 3; ix, 198 pp.; 
New York, 1946. (3) Salter, L. A., Jr. : A critical review of research 
in land economics; 258 pp.; Minneapolis, 1948. (4) Social Science 
Research Council : Research method and procedure in agricultural 
economics; 2 vols., processed; New York, 1928. 

ORGANIZATION OF SUBSEQUENT MATERIAL 

The six chapters which follow attempt to define in more detail 
the field of forest economics which has just been outlined. The 
effort is directed, not to describing boundaries, but to representing 
the field of forest economics — by method, by scope, by content, 



28 RESEARCH IN THE ECONOMICS OF FORESTRY 

and by level of approach. The principal element in these chapters 
is a series of study statements, each of which is concerned with a 
specific research problem believed to be characteristic of a segment 
of the economics of forestry. The arrangement of these statements 
and of the text which connects them has been designed to point 
up the essential unity of the entire field and to show how each 
study relates to others. The study statements may be regarded as 
construction timbers. The objective has been not to heap them up 
into a pile, nor even to sort them into stacks of similar grade or 
size, but rather to erect them into the framework of a house. As 
a guide to what follows, the general arrangement of the structure 
can be indicated. 

The economic process in forestry consists of several steps : (a) 
growing and making available forest goods and services, (b) 
harvesting and processing forest materials, (c) distribution and 
marketing of the products, and (d) their final consumption. Chap- 
ters IV through VII treat in order these four steps. But before 
these stages in the forest-economic process are considered, the 
forest economy at large is dealt with in Chapter II, and the agents 
of forest production in Chapter III. 

Chapter II treats the forest economy at large as one of several 
segments of the total economy, and is concerned not only with the 
operation of the forest economy but also with the major inter- 
relations between forestry and other lines of economic activity. It 
contains material which cuts across two or more steps in the 
forest-economic process outlined in the preceding paragraph. 

Chapter III brings together that material on productive agents 
from the whole economics field which is of major concern to the 
economics of forestry. It considers the relation of each agent, in 
turn, to the forest economy. The agents appear comparatively 
isolated from each other, as necessary background for the two 
succeeding chapters where problems of the combination of agents 
are emphasized. 

Chapter IV includes material on the combination of agents of 
production in timber growing and closely related aspects of forest 
enterprise. Chapter V covers problems of the combination of re- 
sources in the harvesting and processing of forest goods and serv- 
ices. Taken together, these two chapters comprise the analysis of 
supply aspects of the forest economy. 

Chapter VI, on marketing, includes a wide range of materials 
dealing with market structure, practices, and organization; prices 
and price making; geographic aspects of the market; and market 



INTRODUCTION 29 

trends. It describes the meeting of supply and demand for forest 
products; hence it falls logically between Chapters IV and V, 
which deal with supply, and Chapter VII, which concerns demand. 
It should be noted that Chapter VI takes a broad view of the 
market and is concerned with all points in the economic structure 
at which goods and services are exchanged. It is not confined to the 
examination of exchanges at any particular stage in the forest- 
economic process. 

Chapter VII deals with the wants of consumers for forest goods 
and services — that is, with the basis of all economic activity in 
forestry. There would be much logic in putting this chapter at the 
beginning of a discussion of the forest economy as a reminder that 
the foundation of the economy is the demand of users for its 
products. From this point of view, the succeeding chapters might 
thus logically be considered with their present order reversed. 
Treatment from the standpoint of the flow of products rather 
than from that of the flow of consumer wants has, however, been 
chosen as the basis of organization. 

The final chapter of the volume reviews recent and current 
research in forest economics in the United States, describing it 
against the background of the field which is here provided. 



CHAPTER II 



The Forest Economy at Large 

The research topics in this chapter and the next are those that 
cut across two or more of the steps in production and consumption 
with which the economics of forestry is concerned. The topics in 
the present chapter are the " general" studies in forest economics 
other than studies of the agents of production. The latter are 
brought together in Chapter III. 

Following the statements on forest-economics research, a brief 
discussion is presented of the closely related research in the 
sociology of forestry. 

LOCATION OF ECONOMIC ACTIVITY 

In this group are the general research topics which give strong 
attention to geography. Two sorts of research problem in the lo- 
cation of economic activity may be recognized. The first sort is to 
examine and explain the geography of forest resources and eco- 
nomic activity at a point of time or in a given period: a static 
approach. The topics that follow are all essentially of this sort. The 
second kind of research problem is to explain change, to forecast, 
and so on — for example, to study the migration of the tie market, 
of lumber-production centers, or of recreational use of forests. The 
tools of this dynamic research are the same as those described 
here; only the time dimension is added to the problem. 

The section begins with studies, primarily descriptive, of the 
geography of the forest economy (/). Next come two analytical 
topics (2, 2a) on location factors. These are related to material of 
more limited scope found in Chapters IV and V — e.g., 49c, on 
locational aspects of land value; and 58, on investment decisions, 
which include plant location. The two remaining topics in this 
section, dealing with interregional competition, are allied to the 
marketing and price topics of Chapter VI, especially 66, 67, and 
68, on market geography, and 81, on the geographic structure of 
prices. Among others related to the subject of location are the 
topic on land zoning (16a) in the present chapter, and those on 
wage structure (23) and the capital market (23) in the next. 



FOREST ECONOMY AT LARGE 31 

1. DELINEATION OF FORESTRY AREAS— William A. Duerr 

Purpose. To delineate areas within which given forest-economic 
conditions are relatively homogeneous and among which there are 
significant differences. 

Scope and relation to the field. Many studies in the economics of 
forestry relate to or are confined within specific areas. In such 
studies, the choice of the study area is often a major step. The line 
of investigation to be described here is therefore basic to many area 
studies outlined in this book. Beyond this, as an inquiry into the 
geographic pattern of the forest economy, it constitutes a field of 
research in its own right. Some of the major types of forestry areas 
whose delineation may fall within the scope of the present topic 
are: 

1. Tenure areas. These may be delineated so that each area 
will be homogeneous and significantly different from others with 
respect to class of forest ownership or predominating class of 
ownership or ownership combinations — for instance, lumber com- 
pany areas, national forest areas, pulp company-farm woodland 
areas. Similarly, other forms of tenure may be taken as the criteria 
for delineating areas (see 32). 

1. Forest-resource areas. Included here are several sorts of 
areas: those delineated on the basis of the proportion of land in 
forest (30); those drawn so as to recognize geographic variation in 
the relative values of the different forest resources — e.g., a water- 
shed-protection area, a timber-and-grazing area; and those relat- 
ing to the characteristics of a particular forest resource. Examples 
of this last sort are timber areas (75, 48, 49c) set up on the basis 
of type, condition, accessibility, degree of management, or other 
criteria; and systems of areas delineated in accordance with water- 
shed values {49b) or other nontimber values such as those in 
wildlife (49a). 

3. Industry or economic-activity areas. Such areas may be 
delineated to define the geographic concentrations of timber pro- 
duction, in general or for particular products — for example, cross- 
tie areas, pulpwood areas — or of timber consumption (2, 3, 87) ; 
concentrations of timber-manufacturing activity (54)] or concen- 
trations of forest or wood-conversion income or employment (8, 9). 

4. Marketing areas. These may be drawn so as to delineate 
certain marketing conditions or systems — small-middleman areas, 
big-producer areas, cooperative-marketing areas (62, 69) — or to 
define the geographic aspects of the marketing process — timber- 



32 RESEARCH IN THE ECONOMICS OF FORESTRY 

source areas tributary to a particular concentration point or points 
(65, 66) — or destination areas for timber products coming from a 
specified locality (6/). 

5. Price and cost areas. Areas may be drawn on the basis of 
price-making conditions or price levels for particular products or 
groups of products (78, 81) — for example, low, medium, and high 
stumpage-price areas. Closely related to price and to marketing 
areas are transportation areas {2a, 68), such as zones of equal 
transportation cost from or to specified points. 

6. General condition or problem areas. These areas are 
delineated on the basis of multiple criteria — for instance, small- 
holding areas primarily valuable for timber, where pulpwood is 
the chief commercial product, where prices tend to be relatively 
high, and where timber-management practices are generally de- 
structive; small-holding areas primarily valuable for timber, lying 
outside the main pulp-mill timber-sheds, where markets are varied 
and changeable, prices relatively low, and timber-management 
practices moderately destructive; small-holding areas where water- 
shed values are paramount and grazing is extensive. Such areas 
may be of use in studying the history of the forest economy (4) 
or the economic conditions of forestry (12) in a varied territory. 
The mapping of areas of this sort is a useful orientation procedure 
for the forest researcher or administrator who is getting acquainted 
with a new territory. 

Basic considerations. While planning the area-delineation job, 
the researcher should have in mind the following general con- 
siderations: 

1. The test of satisfactory delineation is that within the result- 
ing areas the variability of the chosen criteria — with due con- 
sideration for importance ranking (see point 4, below) — is less, 
and between contiguous areas the variability is more, than would 
be the case under any alternative locations of the boundaries 
within the limits imposed by the chosen classes of the criteria 
(point 2) and the standards of generalization (point 7). This test 
may be made qualitatively or quantitatively, as indicated by the 
delineation procedure followed. 

2. Area delineation always involves the use of at least one cri- 
terion and at least two classes of the criterion — e.g., private forest 
ownership, its presence or absence. One-criterion delineation is the 
simplest and most easily defensible logically. Included in this 
category are those cases where there are any number of criteria 
whose measures may be added into one. 



FOREST ECONOMY AT LARGE 33 

3. For some purposes, however, the more useful areas are those 
based on more than one criterion. Their delineation is less simple 
because unless the criteria are closely related the potential number 
of areas may be very great. In this event, one of two courses may 
be followed. The attempt to achieve a single delineation of areas 
may be abandoned, and refuge taken in two or more independent 
delineations, each based on different criteria. Or generalization 
may be resorted to; this will introduce a large element of judgment. 

4. In practice, the element of judgment is conveniently intro- 
duced in multiple-criterion delineation by grading or ranking cri- 
teria. For example, a first approximation may be made on the 
basis of the two criteria judged to be most important, and suc- 
cessive approximations then arrived at by bringing in further 
criteria singly or in groups. 

5. In practice nearly all criteria will be correlated to some ex- 
tent. High correlations permit reduction of the number of criteria 
by letting each of a relatively small group of key criteria represent 
all the others with which it is highly correlated. The aim ordi- 
narily will be to work with a minimum number of criteria having 
slight intercorrelations. 

6. Every well-conceived and well-delineated area will be found 
to contain at least one part that may be called a type subarea. 
This is a part of the area, permissibly a small part, located any- 
where within it, where conditions are typical of the area and highly 
representative of the classes of criteria used to delineate the area. 
Likewise, in many cases, it will be found that areas group them- 
selves into larger aggregates, or super-areas, which, though less 
homogeneous than the areas, still retain features of uniformity and 
features of marked contrast with surrounding super-areas. 

7. In almost every case, some generalization will be necessary 
in drawing final area boundaries: straightening lines, combining 
areas, and the like. Politically bounded areas, a form of generaliza- 
tion, are often most convenient for statistical purposes. In general- 
izing, one alternative is to set up standards at the start and work 
toward them in a single process. Here data are analyzed in only 
slightly greater geographic detail than will be recognized in the 
end. A contrasting alternative is to obtain initially the fullest 
detail that data permit, generalizing later as needed. In this case, 
any substantial generalization should be carried out as a regular 
part of delineation research, with the benefit of the data and 
procedures that were available for the initial study. However, the 
use of detail very far beyond the contemplated final standard is 



34 RESEARCH IN THE ECONOMICS OF FORESTRY 

often poor practice, especially where multiple criteria are involved: 
the student runs the risk of bogging down in data and of losing 
the salient relationships. 

Data required. Data are needed on whatever criteria are to be 
used in the area delineation. For specific discussions of data and 
sources, the investigator should refer to the related topics in this 
book. On the question of geographic detail, reference is made to 
point 7, above. 

Procedure. Areas may be delineated solely on the basis of judg- 
ment, without any data except what the researcher and his con- 
sultants carry in their heads. Or formal data may be used, in 
which case they may be manipulated with varying degrees of 
statistical precision. Within the wide range of procedures, three 
representative approaches will be described. It should be empha- 
sized that rarely will any one of these be used in pure form. De- 
sirable combinations will suggest themselves to the investigator; 
also, the opportunity will be apparent for using one method or 
combination as a check against another. 

I. Conference method. No recorded data are needed other than 
base maps. The investigator visits persons familiar with the con- 
ditions in question within the territory and, after explaining his 
criteria, asks these persons to draw the area boundaries from their 
own knowledge. He takes notes on the reasons given for the 
boundary locations. The successive persons interviewed may or 
may not be shown the boundaries drawn by previous respondents. 
If they are not, the investigator himself draws the final boundaries. 
An alternative procedure is to commence by asking all respondents 
to meet together around the table to discuss and delineate the 
areas at one time. 

In the conference method, the following considerations are im- 
portant: First, base maps should be used that show familiar 
orientation points. Road maps are often the best. Second, in pre- 
paring the respondent, the study's purpose and the criteria should 
be explained carefully, but further details may usually be with- 
held at least until mapping is in progress, in the interest of simpli- 
fying the request. Third, respondents should usually be asked to 
delineate or designate the contrasting areas surrounding and oc- 
curring among the areas in question. In this way a double check on 
boundaries is made, and no part of the general territory is left 
unaccounted for. Fourth, the possibility should be considered of 
asking respondents to begin by pointing out on the map the 



FOREST ECONOMY AT LARGE 3$ 

various type subareas. From this beginning, the concepts can be 
enlarged geographically until whole contiguous areas are obtained. 

The conference method is well suited where an answer is needed 
quickly, where data are meager, where a great deal of judgment 
must enter into the delineation in any case, or where a preliminary 
hypothesis is needed for further study. The method may often be 
used to advantage where multiple criteria are involved that may 
be explained simply. It is not recommended for single-criterion 
studies for which definitive data are readily available. 

2. Data-inspection method. This and the following method are 
distinguished from the conference method in that the basis for 
delineation is mapped data. 

Available information in regard to each criterion is entered on 
maps, through the use of actual or coded figures supplemented by 
appropriate visual aids such as symbols, colors, or cross-hatching. 
Where advantageous, the maps are made so that they may be used 
together as overlays. After all data are mapped, the investigator 
sketches the boundary lines by eye. 

As an example, it may be supposed that the researcher has the 
problem of delineating forest-ownership areas within a state. He 
has data on acreage of forest land by owner-occupation and size- 
of-holding classes within each minor civil division. The types of 
areas to be recognized have not been predetermined, but will be 
held open for decision in accordance with the geographic pattern 
that is found. One possible approach to this problem is the fol- 
lowing: Carefully selecting the most significant groupings of the 
occupation-size classes, the researcher plots on a single map the 
acreage data for all groups. For this purpose he uses dots within 
each minor civil division, letting each dot represent a certain 
number of acres and using a different color of dot for each occupa- 
tion-size group. The resulting pattern of dots at once suggests 
both the types of areas — of either pure or mixed groups — that 
should be recognized, and the lines where boundaries should be 
drawn. 

The sort of dot map just described is useful in the exposition 
and analysis of forest-economic conditions, without any lines 
drawn upon it. Such a map is, quite properly speaking, a forestry- 
area map. It has the many advantages of raw as against averaged 
data, such as flexibility in interpretation, particularly as regards de- 
gree of generalization. The ultimate in such maps would be one on 
which every individual firm or individual instance was represented. 



36 RESEARCH IN THE ECONOMICS OF FORESTRY 

3. Statistical method. The method is suited to problems for 
which all the data are quantifiable and where the solution must be 
as free as possible from subjective bias. Two sorts of approach may- 
be distinguished, depending on the form of the data: 

a. The data apply to contiguous aggregates of land — e.g., forest- 
resource data for each county in a state — and the problem conse- 
quently is one of grouping these aggregates into areas. Where a 
good many criteria offer themselves for possible use, the initial 
step will be to test correlations between pairs of criteria and weed 
out those that can be represented by others. Appropriate impor- 
tance ratings are then established for the remaining group. On a 
map showing the boundaries of the land aggregates in question, 
the measures of the criteria first to be dealt with are entered. These 
measures may be in raw form or coded. One useful type of coding 
is the establishment of classes. Another is a system of percentiles, 
this system being most workable where the number of land ag- 
gregates is not excessive or where the total number can be dealt 
with in groups by setting up tentative super-areas and developing 
percentiles within each. Using such visual aids, a first-approxi- 
mation grouping of aggregates is made on the basis of judgment. 
This and alternative groupings are then tested for variability in 
order to determine the best. If there are additional criteria re- 
maining to be introduced, these may now be mapped. If any 
change in area boundaries seems to be indicated in light of the 
new criteria, the investigator will then determine whether the 
possible improvement in variability of new criteria resulting from 
such change will more than offset the worsening in variability of 
old criteria. The calculation of variability is purely mathematical, 
but the weighing of gains and losses is a judgment matter. 

b. The data apply to points or scattered areas — e.g., prices for 
wood at various railroad loading points in a state — and the prob- 
lem consequently is one of drawing lines among these points. 
Ordinarily under this approach a single criterion — say, pulpwood 
prices — will be studied at a time. The data for geographic points 
are plotted on a map containing a grid, such as of latitude and 
longitude. The average value of the criterion is computed for each 
of several latitude classes within each of several longitude classes. 
On coordinate paper, average criterion value is then plotted and 
curved over latitude by longitude class. Reading from these curves, 
criterion value is next plotted over longitude by latitude class and 
curved. Further such harmonizing of the curves may be done as 
needed. Reading from the final sets of curves and interpolating 
where necessary, latitude is plotted and curved over longitude by 



FOREST ECONOMY AT LARGE 37 

criterion- value class on the original map. Within the standards of 
generalization, these curves will, properly, be located so as to 
minimize the deviations of original points from them, and the 
results may be tested by calculating these deviations. It will be 
evident that the full method as described is suited primarily where 
the data are numerous and the criterion values imperfectly cor- 
related with latitude and longitude. Otherwise the data-inspection 
approach gives just as satisfactory results and is much simpler. 

As an alternative procedure where the data apply to points 
equally spaced, consideration may be given to fitting orthogonal 
polynomials in three dimensions (DeLury, cited). 

Form of results. In addition to the map showing the areas 
delineated, descriptions of each area will make the map more 
understandable and useful. Such descriptions should be centered 
around the criteria studied, and will in certain types of work lead 
logically into explanations of why the boundaries are located as 
they are (e.g., 2). In many cases it is helpful also to present the 
basic data, either tabulated or mapped. 

References. (1) DeLury, Daniel B.: Values and integrals of the 
orthogonal polynomials up to n = 26; vi, 23 PP-5 Toronto, 1950. 
(2) Elliott, Foster F.: Types of farming in the United States; vi, 
225 pp.; Washington, 1933; pp. 71-158. (3) Lively, C. E., and R. 
B. Almack: A method of determining rural social sub-areas with 
application to Ohio; Ohio State Univ., Dept. Rural Economics, 
Mimeo Bui. 106; 57 pp., processed; Columbus, 1938. (4) Mac- 
Farlane, David L. : A quantitative test of the significance of land- 
use areas; Jour. Land and Pub. Utility Econ. 17, 3, pp. 293-298; 
1942. (5) Mangus, A. R.: Rural regions of the United States; ix, 
230 pp.; Washington, 1940; especially pp. 77-89. (6) U. S. Nat'l 
Resources Committee: Regional factors in national planning and 
development; xviii, 223 pp.; Washington, 1935; especially pp. 

I38-I79- 

2. LOCATION FACTORS IN FORESTRY AND FOREST INDUSTRY— R. G. 
Bressler, Jr. 

Purpose. To determine and analyze the major factors influenc- 
ing the organization of forest-economic activity within an area. 
Wood-using industry will be taken as an example. 

Definitions. Location factors are those physical and economic 
conditions whose characteristics and influences vary with geo- 
graphic location and which, as a consequence, produce differences 
in costs or prices from one location to another. They include such 



38 RESEARCH IN THE ECONOMICS OF FORESTRY 

elements as the geographic patterns of markets and production 
areas, the distribution of timber stands, the costs of transporting 
raw materials and finished products, climatic and soil conditions, 
the availability of power and labor, and the established network 
of transportation facilities. In addition, certain physical and eco- 
nomic characteristics of timber products are also location factors 
in that they determine processing changes in weight and form that 
influence value and transport costs and hence the location of 
wood-using industry. 

The term organization here means the location, type, size, 
operating territory, and other such characteristics of wood-using 
firms — all of which must be considered together in studies of 
location. 

For present purposes, an area is taken to be a relatively homo- 
geneous timber-producing section (/) whose aggregate output of 
wood products is not sufficiently large to have a significant effect 
on geographic and interproduct price structures. 

Scope and relation to the field. Location problems in a full 
sense are coextensive with the whole economics of forestry. They 
involve geographic production and consumption patterns, spatial 
aspects of prices and of supply and demand, transportation costs, 
and the interrelations of supply and market areas and the econ- 
omies of scale in plant operation. Studies of location factors re- 
quire gathering together the results of many other studies into 
comprehensive syntheses. Consequently they are valuable not 
only for their direct results but also as a means of checking past 
research for completeness of coverage and appropriateness of 
form, and in a like way of directing future work along productive 
channels. 

While this broad view of economic interrelationships is inherent 
in location problems, the scope of the present project is less am- 
bitious. Here attention is directed to the organization of wood- 
using industry in a particular area. What factors are responsible 
for the existing organization? Why are other wood-using oper- 
ations not located here? And, more fundamentally, what would be 
the optimum organization of wood-using operations for the area? 
One takes as given the broader aspects of industry such as geo- 
graphic market and price structure, and stresses the problems of 
the particular area within this broad framework. In the area the 
basic resource of concern is timber — a particular spatial pattern 
of quantities, species, sizes, and qualities. Externally the area is 
confronted with a number of markets for each alternative wood 



FOREST ECONOMY AT LARGE 39 

product, with "net" prices f.o.b. the area, related to market prices 
through a complex of transportation and handling costs. Finally, 
there are the yield and cost characteristics of the alternative har- 
vesting and milling operations. The problem is to combine these 
into a description of that pattern of timber utilization and industry 
organization that will be most " efficient" — here taken to mean the 
one that will produce, over time, the highest net income from the 
timber resource — and from this to explain the existing pattern and 
suggest appropriate directions of change. 

This project is interdependent with many other areas of forest- 
economics research. For example, topics 62, 63, 66, 6/, and 81 
describe the geography of markets, the movement of products, 
and the geographic structures of prices that knit producing and 
market areas into an integrated whole. Other topics, such as 
57*2 and 70, are concerned with the efficiency and costs of harvest- 
ing, processing, and marketing timber and timber products. 
Finally, several studies involve the combination of the results of 
such research into appraisals of major problems. These roughly 
parallel the present project. The reader is referred also to topic 3, 
a study of interregional competition; 49c, geographic variations in 
forest land values, insofar as that study attempts to explain as 
well as describe such variations; 59a, a study of the optimum 
organization of an integrated timber-management enterprise; 68, 
the effects of transportation costs. 

Data required. Since this project will utilize the results of many 
other studies described in this book, it will be necessary here only 
to indicate the types of material required and the manner in which 
they will be used. Where the required data are not available for a 
given area, much research may be needed to obtain them. 

1. Description of the forests of the area. This includes maps of 
the timber resources, showing type and condition of stands and 
present supply and potential yields of the several timber products. 

2. Description of utilities serving the area. Maps of existing and 
potential facilities, including: (a) transportation facilities within 
the area, such as railroads, roads, and waterways; (b) power 
sources and potential power developments; (c) transportation 
facilities joining the area with major markets; and (d) specialized 
utilities needed for manufacturing the products in question — 
e.g., suitable water in sufficient supply for pulp-mill operation. 

3. Transportation and handling costs. Data on costs of moving 
raw material and finished products are required in such form that 
they may be used to compute local assembly costs and out-of-area 



40 RESEARCH IN THE ECONOMICS OF FORESTRY 

charges to major markets. If transportation and handling costs 
vary appreciably with tree size or species, they should be com- 
puted separately for each major size and species class present in 
the area. 

4. Prices of productive agents. A complete list of prices for 
agents involved in the harvesting and milling of timber and 
products is required, since most of these prices will differ signifi- 
cantly from area to area — wages for the main classes of jobs, 
power costs, fuel and supplies, equipment prices, construction- 
material prices, etc. 

5. Product prices. Price lists for the important timber products 
and by-products, including raw materials and semiprocessed prod- 
ucts as well as finished products. For the most part these prices 
will be quoted for each of a number of alternative markets — e.g., 
the mill price for Douglas fir sold in the northeastern United 
States, in California, and to the local market. All available in- 
formation on prices f.o.b. the area should be summarized. 

6. Transformation functions. It is necessary to know the yield 
functions for the major species: loss of weight in processing and 
eventual outputs of products and by-products per unit of timber 
raw material. Separate functions may be needed for different 
types of plants — e.g., overrun factors for small portable mills and 
for permanent mills. 

7. Mill operating costs. Data on mill operating costs and econ- 
omies of scale, obtained from available research reports and from 
detailed studies of the several types of mills both within and out- 
side the area. These must be in form that will show the effects on 
costs of changes in type of operation, volume of output, type of 
raw material, and capacity. 

Analysis of data. The data may now be used in determining that 
combination of markets, products, and intra-area organization 
which will maximize returns for the timber resource. Starting at 
the markets, transportation and handling costs can be deducted 
from market prices to obtain net prices of wood products f.o.b. the 
area. Comparisons for each product will then indicate in which 
market or markets the area would find most advantage, thus 
delineating the pertinent market areas and reducing the list of 
f.o.b. prices to a single maximum, or narrow range, for each prod- 
uct. For example, in the Douglas fir region, the market for ply- 
wood may be nation-wide, but that for many grades of lumber 
may be confined to the West Coast or even to the producing area 
alone. 



FOREST ECONOMY AT LARGE 4 I 

These f.o.b. prices, of course, represent gross values, and from 
them must be deducted costs of harvesting, hauling, milling, and 
processing in order to arrive at net returns to the forest resource. 
This step is no simple matter, since the appropriate cost deductions 
will depend on the physical characteristics of the area, on the size 
and species of the timber involved, on the spatial pattern of timber 
stands, and on the organization of the harvesting and milling 
operations. Rough estimates of these costs can be obtained, how- 
ever, and deducted from the area product prices in order to reduce 
the list of alternatives by eliminating those clearly uneconomical. 
For example, in the second-growth belt of the Sierra Nevada, net 
stumpage returns from the sale of timber for sawlogs, poles, and 
piling may be well above the returns from sale of pulpwood. The 
latter product alternative could thus be eliminated from further 
analysis. 

Since almost all operations will result in several joint products, 
including by-products, net values for the timber raw material 
must be calculated by computing aggregate gross values as the 
sum of the typical yields multiplied by area prices, and then sub- 
tracting the combined costs for the products. Working in terms of 
such totals will minimize the problem of arbritary cost allocation 
among joint products. Where information is available for standing 
timber by quality classes, it will aid in determining the propor- 
tions of the various products which can be produced. 

Having narrowed the list of wood products to a few of the most 
promising alternatives, the next step is to determine the least-cost 
organization for each of these operations. For simplicity's sake it 
is here assumed that product output and value do not vary 
materially with organization, so that it will suffice to consider 
minimum cost rather than maximum net revenue. The minimum 
cost in question is total cost, though under the assumption made 
it may be thought of as unit cost. To determine the least-cost 
organization for each operation will involve detailed descriptions 
and maps of timber distribution and transportation facilities, and 
data on assembling and milling costs. If studies of transportation 
and mill operations are available for other areas, the first job is to 
adapt these findings to fit the local situation. If the original studies 
are in terms of physical input-output as well as cost relationships, 
and if the underlying technological conditions are appropriate to 
the area in question, adaptation involves primarily the application 
of local factor prices and cost rates to the physical functions. 
These modifications will result in a set of cost relationships from 



42 RESEARCH IN THE ECONOMICS OF FORESTRY 

which total area-wide costs may be estimated by the application 
of appropriate estimates of input and output. These will include 
short- and long-run cost functions for the plants or mills involved 
in the several alternative organizations, and functions showing the 
effects of such factors as load and distance on costs for the several 
types of transportation. 

At this stage the procedures are necessarily synthetic, since the 
object is to estimate costs, not for some real system, but for organi- 
zations that do not exist. This is accomplished by indicating the 
details of each alternative and then making careful estimates of 
the costs that would be involved in such a hypothetical situation. 
There are almost innumerable alternative organizations for each 
operation or combination of products, organizations ranging from 
a large number of small sawmills scattered all over the area to a 
single strategically located plant serving the entire area. Charac- 
teristics of the long-run or economies-of-scale curve may rule out 
very small mills as uneconomical, while rapid increases in assembly 
costs with enlargement of mill supply areas may impose obvious 
lower limits to the number of mills. Between these limits, to- 
pography, spatial distribution of timber stands, and the trans- 
portation network will further narrow the selection. Finally, 
several possible organizations may be selected and developed in 
some detail, which would include indication of the number and 
location of mills, the allocation of the area among mills, the organi- 
zation of logging and assembling operations, and any necessary 
within-area transportation in order to reach shipping points. For 
each of these organizations, the basic cost functions will permit 
estimates of total area-wide costs, and comparisons among the 
several estimates will indicate the approximate range of minimum 
costs. While more and more alternatives may be tested in order to 
define the optimum organization more precisely, the process need 
not be pushed far for present purposes. Although there will be 
some particular organization that will result in minimum costs, 
there usually will be a fairly wide range within which combined 
costs closely approximate this true minimum. 

After these synthetic analyses have been completed, one may 
return to the f.o.b.-area wood-product prices and complete the 
study. The cost estimates will be substituted for the preliminary 
estimates originally used, and net returns to the timber resource 
computed for each of the alternative organizations. Comparisons 
among these will indicate which organization or combination will 
represent the most economical organization for the area — the 
fundamental question. 



FOREST ECONOMY AT LARGE 43 

If wood-using industries already exist in the area, the research 
results to this point permit explaining how economic and, es- 
pecially, locational forces have influenced their development and 
why some forms of industry appear while others are missing. 
More important, comparisons between the synthetic results and 
the existing organization should suggest how such things as lags, 
imperfect knowledge, and local institutional factors, such as 
diversified land holdings, have modified the development, and the 
general direction of change required to improve the present situ- 
ation. 

This abbreviated discussion may imply that the research pro- 
cedures in this project are simpler, and the end products more 
precise, than actually will be the case. Thus, a limited list of 
alternatives has been treated as though each were entirely separate 
and independent, while in fact there may be important inter- 
connections that could mean compelling economies for diversified 
rather than specialized organizations. Again, product and factor 
prices have been treated as given and exact magnitudes, when 
there is no firm basis for anticipating these prices exactly for future 
periods. To be significant, the efficient organization must refer to 
future expectations of production, prices, and technology, and 
should be based on past history only insofar as this provides some 
estimate of future conditions. At the same time, efficient organi- 
zation may sacrifice some of the low costs and high returns associ- 
ated with specialized organization with given prices in order to gain 
flexibility to adjust to changing conditions in the uncertain future. 
In spite of these problems, studies along the lines suggested should 
be useful in explaining the development of wood-using industry 
and in pointing the way to more efficient organization. 

References. (1) Hoover, Edgar M., Jr.: Location theory and the 
shoe and leather industries; xvii, 323 pp.; Cambridge, Mass., 
1937. (2) Cassels, John M.: A study of fluid milk prices; xxvii, 303 
pp.; Cambridge, Mass., 1937. (3) Hammerberg, D. O.: Allocation 
of milk supplies among contiguous markets; Jour. Farm Eco- 
nomics 22, 1, pp. 215-219; 1940. (4) Bressler, R. G., Jr.: Trans- 
portation and country assembly of milk; Jour. Farm Economics 
22, 1, pp. 220-224; 1940. (5) U. S. Dept. Interior, Bureau Recla- 
mation: Agricultural processing industries; Columbia Basin Joint 
Investigations, Problem 24; xvi, 120 pp.; Washington, 1945. (6) 
Stigler, George: Production and distribution in the short run; 
Jour. Political Economy 47, 3, pp. 305-327; 1939. (7) Hart, 
Albert Gailord: Risk, uncertainty, and the unprofitability of com- 
pounding probabilities; " Studies in mathematical economics and 



44 RESEARCH IN THE ECONOMICS OF FORESTRY 

econometrics, " Oscar Lange, Francis Mclntyre, and Theodore O. 
Yntema, eds.; iii, 292 pp.; Chicago, 1942; pp. 110-118. 

2a. EFFECT OF TRANSPORTATION COSTS ON THE FOREST ECONOMY 

To analyze the effect of transportation costs, such as railroad 
rates, upon production, distribution, and consumption of forest 
products. To forecast or explain the effects of rate changes upon 
production, distribution, and consumption. 

This study is, in a sense, a special case of topic 2 and also of j. 
In this instance, instead of examining all the factors determining 
the location of economic activity, one factor is singled out, and its 
effects upon the forest economy are analyzed in detail. Of the 
many factors that might be selected from topics 2 and J, trans- 
portation cost is considered an appropriate example because forest 
products are of widely varying and generally low specific value, 
and because spatial relationships — the way standing timber occurs 
in nature and the way that some services of the forest have to be 
used (see below) — are of peculiar importance in forestry. 

If railroad transportation is examined, the geographic scope is 
large: a national study may be most appropriate. The unit of 
investigation is the single timber product. The two major tools of 
analysis are maps showing cost zones for transportation into and 
out of the major concentration points in distribution (/) and 
localized statistics on production, consumption, and movements 
of the product. Given sufficient data, a historical approach may be 
used. For a related study whose scope is limited to marketing, 
reference is made to topic 68 in Chapter VI. 

An interesting variant of this study concerns those cases where 
the consumer, rather than the product, is the thing transported — 
for example, the effect of transportation costs upon the location 
and use of recreational or game forests. 

3. INTERREGIONAL COMPETITION IN TIMBER PRODUCTION 

To analyze the factors determining comparative advantage of 
two or more areas in timber production and interregional trade. 

A study of the comparative advantage of the West Coast and 
the South in supplying national markets for lumber and other 
timber products is a representative study under this head. Besides 
transportation costs, the researcher will consider timber accessi- 
bility, production technology, wage rates, labor productivity, and 
other determining factors. The immediate aim is cost data or 
supply schedules for each kind and grade of product, or group of 






FOREST ECONOMY ATJLARGE 45 

joint products, from each of the two regions to each major market 
area. The point of view may well be the national interest in 
efficient use of resources. This sort of research is basic to many 
kinds of public planning — for instance, the establishment of re- 
gional timber-growth or production goals (80, 00), and general 
action programs such as are evaluated in topics 14 and ij. 

3a. INTERNATIONAL TRADE IN A TIMBER PRODUCT— Ivan M. Elchibegoff 

Purpose. To trace the movements of a timber product in inter- 
national trade over a period and to explain these movements in 
terms of timber stands, demand and supply, costs of transporta- 
tion, tariffs, other public regulations, forest policy, national-de- 
fense needs, balance of payments, international investments, and 
other factors. By way of illustration, this statement will concern 
itself with Canadian-American trade in lumber, which consists 
overwhelmingly of Canadian softwood lumber exports to the 
United States. 

Definitions. The movement of a timber product in international 
trade is considered to include distribution from the forest through 
intermediate stages — logging, milling, wholesaling, retailing, etc. — 
to the point of final consumption. The criterion of international 
trade is that the timber product should cross in the above process 
at least two national boundaries, being exported from one country 
and imported into another. 

Lumber is defined to include sawlogs and all sawmill products. 

Relation to the field. The scope of this research, and hence its 
relation to the field, depends on the significance of the timber- 
products export and import trade in the economy of the nations 
studied. For instance, if, as in British Columbia, the timber 
economy is highly important and a major share of the timber 
crop is intended for marketing abroad, the entire economy may be 
geared to the international timber trade. On the other hand, if 
international trade accounts for only a small portion of a nation's 
production or consumption of timber products, and especially if 
the whole forest economy is but a small portion of the total 
economy — as is true, in general, in the United States — then the 
effects of this international trade upon the entire economy may be 
insignificant. In the case of British Columbia, the entire forest 
economy may be studied in terms of its export trade, the research 
having a strong flavor of topics 2, 4, 6, 7, //, or others in the 
present chapter. In the case of the United States, however, a 
survey of international timber-products trade with one country or 



46 RESEARCH IN THE ECONOMICS OF FORESTRY 

even many countries may be only a phase in consideration of such 
problems as domestic consumption (87) or marketing (e.g,. 62, 
63, 66), the research having a more restricted setting. In the 
present discussion, the study of international trade will be con- 
ceived in a broad context. 

Data required and sources. Four types of data are needed: first, 
background data on world trade in timber products, with particu- 
lar reference to the United States and Canada; second, descriptive 
data on the two countries, such as population, resources, and 
lines of production; third, statistics on U. S. -Canadian lumber 
trade; and fourth, data on the factors determining U. S. -Canadian 
lumber trade. 

1. Background data on world trade. This information is re- 
quired to establish the significance of the trade in lumber between 
the United States and Canada in relation to world and regional 
trade. What part of total world trade arises in and between the 
two countries? What part of the international trade is in lumber? 
The degree of detail will depend on the scope of the project. For a 
comprehensive, long-range survey, data on world forest resources 
may be required. 

Data may be had from sources such as the following: Yearbook 
of Forest Products Statistics and other publications of the United 
Nations Food and Agriculture Organization; International Trade 
of Wood, Statistical Figures for the Years 1925 to ipjp, published 
by the International Institute of Agriculture, Rome, in 1944; 
and compilations of U. S. Government agencies such as the 
Department of Commerce and the Tariff Commission. 

2. Descriptive data on the two countries. These data include 
population, industry, forest resources, and timber production, 
manufacture, and distribution. They serve to place the forest 
economy, and particularly the timber trade, in the whole domestic 
economy. For relevant information and suggestions, with special 
reference to the United States, other topics in the present chapter 
may be consulted, especially topics 6 through p. For Canada, data 
may be obtained from the dominion and provincial forest services 
and the Dominion Bureau of Statistics. 

3. Statistics on U. S. -Canadian lumber trade. These include 
quantities, and prices or total values, by category of lumber, 
geographic trade area, method of transportation, etc. The data 
should be obtained to cover a number of years, on an annual basis 
unless the trade or any phase of it follows a seasonal schedule. 

Data may be obtained for the United States from U. S. Foreign 



FOREST ECONOMY AT LARGE 47 

Commerce and Navigation yearbooks and from special compila- 
tions of the U. S. Forest Service, the Forest Products Division of 
the Department of Commerce, and the Tariff Commission. Before 
undertaking to compile the needed data, the above agencies 
should be consulted to make certain there will be no duplication 
of work already done. For similar information on Canada, publica- 
tions of the Dominion Bureau of Statistics should be consulted, 
particularly the annual releases on the trade of Canada. 

4. Data on factors determining the U. S. -Canadian lumber 
trade. These factors are outlined under Purpose, above. 

Information on competitive timber stands and on comparative 
costs of logging, lumber production, and lumber distribution is 
collected and analyzed by the U. S. Tariff Commission as a basis 
for deliberating tariffs and determining schedules of duties. This 
information includes costs of labor and living in the South, North- 
west, and British Columbia, and costs of lumber distribution from 
these areas to the Atlantic Seaboard and the Middle West. For 
information on the Canadian-American balance of payments and 
American investments abroad, the studies of the International 
Economics Division of the U. S. Department of Commerce may 
be consulted, and for information on forest policy, the annual 
reports of the Chief of the Forest Service and their Canadian 
counterparts. 

Data on costs, prices, and tariffs in the United States are ob- 
tainable also from the U. S. Bureau of Labor Statistics, Tariff 
Commission reports on lumber trade, Forest Service price publi- 
cations, and U. S. Department of Commerce reports on the lumber 
and forest products industry. Other possible sources of such data 
are Edwin M. Fitch's The Tariff on Lumber (1936), Peter A. 
Stone and others' Economic Problems of the Lumber and Timber 
Products Industry (1936), and Wilson Compton's The Organization 
of the Lumber Industry (191 6). Some data on freight rates and other 
information on shipping are furnished by The Timberman, the 
Pacific Lumber Inspection Annual, and U. S. Interstate Commerce 
Commission and Maritime Commission reports. 

Similar data on Canada may be obtained from the Dominion 
Bureau of Statistics and the provincial forest services. Lumber- 
trade associations are usually valuable sources of information, 
particularly the Canadian Lumbermen's Association of Ottawa. 

Analysis of data. All information should be carefully scrutinized 
before an attempt is made at analysis. Statistical material should 
be arranged in tables and charts, and the various time series 



48 RESEARCH IN THE ECONOMICS OF FORESTRY 

brought together. Two objectives may be accomplished in this 
processing: first, unnecessary and faulty data can to some extent 
be eliminated; and second, the adequacy of the data can be 
determined and the research worker can obtain an over-all view 
of the status of research in the field. After this review, it will be 
possible to determine the periods for which the data should be 
analyzed, if this was not determined when the project was con- 
ceived. At the same time it will be possible to decide whether 
any special field investigations will be made to fill gaps in the data. 
In many ways this compilation and review of statistics is the most 
instructive part of the research. In any case it prepares the re- 
search worker for the job of analysis. 

I. Background of world trade. The United States and Canada 
have historically been large exporters and importers of forest 
products, particularly lumber. The analysis of their position in 
world trade should be supplemented by an appraisal of their 
position among the countries in each of the several trade regions, 
such as the Pacific area and the North Atlantic area. This ap- 
proach should show the regional geographic setting of the trade 
and at the same time assist in placing this trade in a world 
perspective. 

1. The domestic economies. The analysis of data on United 
States and Canadian population, resources, production, and distri- 
bution should be aimed at establishing the location of consumption 
centers and changes in their location, the location — and changes — 
of raw-material resources and lumber-production facilities, and 
the flow of lumber from producing to consuming centers. The 
analysis should reveal whether the lumber industry in each 
country is primarily an export industry or whether it chiefly 
caters to the needs of the domestic economy. 

3. U. S.-Canadian lumber trade. Although attention here is 
centered on lumber, and particularly on U. S. imports of soft- 
wood lumber from British Columbia, there is a considerable trade 
in hardwood between the two countries that must also be analyzed. 
Furthermore, the United States is overwhelmingly the largest 
importer of Canadian wood pulp and newsprint, and this related 
fact must be kept in the picture. 

For analytical purposes, statistics on trade may be organized in 
the following groupings: (a) exports and imports; (b) hardwoods 
and softwoods; (c) unmanufactured timber and sawmill products 
— with appropriate attention, on the side, to wood pulp and news- 
print; (d) quantities, values, and prices; (e) water and rail ship- 



FOREST ECONOMY AT LARGE 49 

ments; and (f) selected supply areas and selected marketing 
centers between which trade moves. Other groupings, too, may be 
needed to suit the analysis. 

The period of time to be covered will depend on the objective 
sought and the availability of data. It is advisable first to select a 
representative period during which noneconomic factors have 
interfered relatively little with the development and flow of trade. 
In this manner, it is possible to keep the analysis, at least at the 
outset, on comparatively simple and secure ground. 

Two factors, price and quantity in international trade, are 
dependent variables in this research. The analysis of the U. S.- 
Canadian lumber trade therefore centers around these two factors. 
For related discussion of price and quantity, reference is made to 
Chapter VI, topics 78-86 and 87-90. The following discussion 
considers the independent variables associated with price and 
quantity. 

4. Factors determining U. S. -Canadian trade. Some determining 
factors will here be considered individually. However, most of 
them are closely interrelated, and this fact must be kept in 
mind. 

a. Timber stands. Timber trade, whether domestic or inter- 
national, is based on the physical presence of productive factors: 
land resources, capital, and labor. Two factors chiefly determine 
the localization of the trade: timber stands and transportation. The 
latter is discussed below. It is for the research worker to explain 
how the lumber industry and trade in the United States and 
Canada are governed by the distance relations of the natural 
resources and consumers' markets and upon transportability of 
the various goods. 

b. Demand and supply. Demand, supply, and transfer con- 
ditions exhibit considerable uniformity throughout the North 
American Continent. Increase or decrease in demand for lumber 
in the United States is normally followed by a proportional in- 
crease or decrease in imports from British Columbia. With no 
other factors involved, supply changes in British Columbia tend to 
react in the same way as supply changes in the Northwestern 
States or any other region of the United States. This relationship 
can be verified by the investigation of statistical data on trade of 
the pre-Smoot-Hawley era, particularly when demand in the 
United States was on the increase and resulted in higher prices and 
increased imports. For related material, reference is made to 
topics 52 and 03. 



50 RESEARCH IN THE ECONOMICS OF FORESTRY 

c. Costs of transportation. Lumber is a bulky commodity, re- 
quiring a great deal of transportation effort. Hence methods and 
costs of transportation go far to determine competitive advantages 
in international trade. They strongly affect the world position of 
the Northwestern States and British Columbia in lumber produc- 
tion and trade. In this study prime attention will be given to inter- 
coastal and ocean transportation. But it also may prove valuable 
to analyze other forms of transportation. Again, what part is 
played by lumber exports and imports in developing and main- 
taining the shipping industry and in determining its control, 
domestic and foreign? These questions can be investigated by 
analyzing freight rates, distances, reciprocity in value and volume 
of cargo, and the nature of shipping facilities. The reader is 
referred also to topics 2, 2a, 68, and 8i. 

d. Tariffs. The student will want to investigate the following as 
bearing on the relation of tariffs to the U. S. -Canadian lumber 
trade: the nature of the tariffs, whether protective, discriminatory, 
or a source of revenue; the applicability of tariffs, whether to the 
entire group of lumber products or to specific items and quanti- 
ties; the existence of trade agreements, reciprocal or multilateral; 
and, in the case of Canada, the part played by various trade and 
tariff agreements binding that country to other dominions and to 
the mother country. 

Tariffs should also be analyzed in relation to other transfer 
conditions. What effect, if any, do low and high tariffs have in 
times of rising and declining markets? Does a high tariff wall 
merely raise import prices, or does it also raise domestic prices, 
and for what classes of lumber? These relations to trade should, 
of course, be investigated for periods when specific tariffs were in 
force. They should also be considered in relation to exchange 
rates and to fiscal and monetary policies. 

e. Other public regulations. Included here are governmental 
controls, usually promulgated during emergency situations, such 
as OPA (OPS) and WPB (DPA) controls in the United States 
and corresponding measures in Canada during war and postwar 
periods (see, e.g., 84). Such controls deal with allocations, priori- 
ties, and prices designed to meet requirements at home and abroad. 
Others may be invoked in times of economic stress, such as NRA 
codes of fair competition in the United States; their effect on 
trade works most commonly through influence on the level of 
prices. 

f. Forest policy. The effect of public forest policy upon trade 



FOREST ECONOMY AT LARGE 5 1 

depends on the extent of national and local governments' control 
and ownership of economically exploitable timber stands. Where 
the private timber economy is declining, a government may re- 
lease or withhold from the market timber reserves and thus en- 
courage or discourage the trade. In the United States and Canada 
— particularly the latter country, where a great deal of timber is 
owned by the Government — public forest policy is a potent factor 
in international trade. The reader is referred also to topics 
14-16, 28. 

g. National-defense needs. Public policy with respect to na- 
tional-defense needs is also a determining factor in trade. Such 
policy is likely to result in efforts to conserve supplies at home in 
" normal times" by discouraging superfluous exports or dumping 
abroad, and by eliminating waste in consumption. Imports may 
be encouraged in peace time in order to assure sufficient supplies 
close at hand for defense needs and to save transportation and 
other transfer facilities for other uses in time of national emer- 
gency. This is a form of stockpiling. 

h. The balance of payments. This is a truly international factor 
determining trade. It deals with the movement or transfer of 
funds from one country into another — including American invest- 
ments in Canada — for any purpose whatsoever. It affects trade 
by increasing or decreasing money supply, which in turn creates 
new interactions of the supply of productive factors and the 
demand for commodities in each country. Viner and Ohlin (cited) 
have made comprehensive and absorbing studies of this subject. 

i. International investments. American investments in Canada 
have been heavily responsible for the development of forest in- 
dustries in Canada and for international trade in forest products. 
The investigation of this relationship is relatively simple. A great 
deal of data on balance of payments, U. S. -Canadian investments 
across the border, and particularly U. S. investments in logging, 
pulp and paper, and sawmilling industries in Canada, have been 
collected and organized. International investments and other as- 
pects of the balance of payments must be analyzed in light of 
various fiscal and monetary policies. 

References. (1) Social Science Research Council: A survey of 
research in forest economics; Social Science Research Council 
Bui. 24; vii, 52 pp.; New York, 1936. (2) Ohlin, Bertil: Inter- 
regional and international trade; xvii, 617 pp.; Cambridge, Mass., 
1935. (3) Haberler, Gottfried: Theory of international trade; xv, 
408 pp.; London, 1950. (4) Jacob Viner's works on Canadian- 



52 RESEARCH IN THE ECONOMICS OF FORESTRY 

American trade and on theory of international trade in the 1945- 
1950 issues of American Economic Review; they contain valuable 
material on postwar theoretical problems. (5) ElchibegofF, Ivan 
M.: United States international timber trade in the Pacific area; 
xvii, 302 pp.; Stanford, CaL, 1949. (6) Oxholm, Axel H.: Europe 
as a market for American lumber. A plan for its proper develop- 
ment; U. S. Bureau Foreign and Domestic Commerce Trade 
Information Bui. 786; 34 pp.; Washington, 1932. (7) U. S. Dept. 
Agriculture, Forest Service: Timber depletion, lumber prices, 
lumber exports, and concentration of timber ownership; Report 
on Senate Res. 311; 71 pp.; Washington, 1920. (8) Pratt, Edward 
Ewing: The export lumber trade of the United States; U. S. 
Bureau Foreign and Domestic Commerce Misc. Series 67; 117 pp.; 
Washington, 191 8. 

HISTORY, STATUS, AND TRENDS OF 
THE FOREST ECONOMY 

This- section comprises studies having the very largest scope, 
being necessarily limited only in geographic coverage. The purpose 
of the studies is to interpret forest-economic conditions in an 
area — over time, or at a particular time. They seek to achieve a 
broad understanding of the whole forest economy. For this reason 
they are of use primarily in guiding public policy, though they 
have many secondary uses in the realm of private policy. 

The first two topics are historical. The historical approach is 
represented later in this book by numerous studies of narrower 
scope. The third and final topic in the section takes stock of the 
forest economy of an area: a sort of forest survey on a wide 
scale. 

4. ECONOMIC HISTORY OF FORESTRY AND FOREST INDUSTRY 

To describe and analyze the causes, consequences, and inter- 
relationships of conditions, events, and ideas bearing on the forest 
economy of an area during a period. 

This line of research relates to all aspects of the forest economy 
within an area, being therein distinguished from other topics that 
have a strong historical flavor, where the subject-matter scope is 
more restricted and the question of geographic scope is in some 
cases less prominent — e.g., topics 10, 30, 33, 63, 82. In view of the 
broad subject-matter scope, the student will in most instances 
select one or more principal themes around which to build the 



FOREST ECONOMY AT LARGE $$ 

historical analysis, such as forest income or employment, a wood- 
using industry, a nontimber resource, or forest-land management. 
For some discussion of the historical method in forest-economics 
research, the reader is referred to Chapter I. 

5. HISTORY OF ECONOMIC THOUGHT IN FORESTRY 

To trace, explain, and evaluate the history of economic thought 
in forestry as it has impinged upon forestry teaching, policy, or 
practice. 

The history of economic thought, a recognized part of general 
economics, has its place, too, in the economics of forestry. In this 
field the purpose of such research is to examine the concepts and 
standards of an economic sort that have determined the course of 
forestry, with particular reference to the appropriateness of these 
standards to the peculiar problems of the forest economy. For 
instance, what was the background of economic doctrine in Europe 
against which the forest-management principles developed that 
were later transplanted to the United States, and what modifi- 
cations in these principles have been and will be necessary to 
adapt them to American economic conditions and doctrines? 
Again, what bearing has the American economic concept of "free 
enterprise" had upon forest conservation in this country, and what 
changes has the concept undergone as applied to the forest econ- 
omy? Some thoughts relevant to this line of study will be found 
in Chapter I and in topics 13, 14, 16, 28, and 29. 

6. STATUS AND TRENDS OF FOREST RESOURCES AND INDUSTRY— M. B' 

Dickerman 

Purpose. Broadly, to appraise the contribution of forest re- 
sources and industry to the economy of an area as a basis for 
considering ways and means of maximizing this contribution. 
Specifically, to determine the amount, quality, condition, location, 
ownership, and rate of growth and depletion of standing timber 
and other forest resources in a given area; to determine the kind, 
location, and timber needs of industry dependent upon the forest 
resource; to evaluate the importance of forest resources and in- 
dustry in the general economy; to analyze the significance of past 
trends in forest resources and industry and to consider probable 
future trends under various alternatives of resource management. 

Definitions. Forest resources: the products and uses of the 
forest that have value to individuals, including industry, and 
society. The major forest resources are usually considered to be 



54 RESEARCH IN THE ECONOMICS OF FORESTRY 

timber, soil and water, forage, wildlife, and recreation. In addi- 
tion, there are numerous relatively minor resources which in a 
limited area may be of major importance: maple syrup, nuts, 
ferns, naval stores, berries, decorative evergreens, and so on. For 
purposes of illustration, timber is the only forest resource here 
considered. 

Forest industry: those industries dependent upon forest re- 
sources as raw material. 

Relation to the field. In almost every forest-economics research 
project, forest resources and industry data are basic either to 
orientation of the project or to evaluation of the findings. A 
timber inventory which expresses in detail the quantity and 
quality of the timber and the trends of both is of use in orienting 
a forest-management study (e.g., 48). Analysis of income possi- 
bilities (//) depends upon information about present and potential 
timber-resource yields. A study of ownership problems (37) de- 
pends upon an understanding of the timber resource and of what 
the differences are in the trends of the resource on the various 
classes of holdings. Marketing studies (62) call for information on 
what, when, and where forest products may become available; and 
supply analyses (50, Ji, 52) use timber inventories to gauge the 
quantity of timber that will be placed on the market at various 
prices. Again, just as this study contributes to others, so the results 
of other studies are essential to this one. As will become apparent, 
the present study is a synthesis of a variety of forestry research. 

A project of the scope indicated in this discussion has been under 
way in the United States since 1930: the National Survey of 
Forest Resources, administered by the Forest Service, U. S. De- 
partment of Agriculture. Some states are actively cooperating in 
the national survey and are intensifying the survey in certain 
areas. 

Delineation of area. A study of the status and trends of forest 
resources and industry must be undertaken on an area basis. Use 
of political subdivisions is common and helpful, for implementa- 
tion of findings frequently involves action by political units. 
Thus, common units are states, counties, or townships. Perhaps 
more meaningful, though, are areas selected on the basis of their 
homogeneity (7): river basins or smaller drainages where the 
transportation system and trade focus toward a common point, 
or economic units tributary to utilization centers {66). Studies of 
this type have been undertaken for nations and even for the world 
at large. 



FOREST ECONOMY AT LARGE 55 

Information needed. A forest and its dependent industry are in 
most cases far from homogeneous. Therefore, the student must 
recognize a number of classifications to facilitate description of 
the various conditions of the resource, the industry, and the 
economy. 

Since the study is broad in scope, there are almost unlimited 
possibilities in enumerating data. Care must be exercised to choose 
and assemble only pertinent source material which bears directly 
on the objectives of analysis. For example, if the objective is to 
examine and emphasize industry adjustments necessitated by the 
future supply of timber, the information needed will differ con- 
siderably from that required to plan resource development for a 
badly cutover area. 

Because the information needed in one area may be different 
from that needed in another, the items enumerated below are in- 
dicative rather than all-inclusive. For a comprehensive enumera- 
tion of items, the student may find helpful the April 1, 1952, 
edition of the Forest Survey Manual of the Forest Service, U. S. 
Department of Agriculture. 

1. Forest acreage. An acreage inventory should be made of the 
forest land, recognizing, as a minimum stratification, stand-size 
class and stocking class. Other stratifications of acreage data 
commonly used are forest site, forest cover type, ownership class, 
and accessibility zone. 

1. Timber volume. For the major acreage stratifications, in- 
formation is needed on timber volume in conventional utilization 
terms. Many stratifications of volume are possible. Two of the 
most useful are species and diameter groups. Units commonly 
used to express volume are cubic and board feet. Since the usable 
volume of individual trees varies according to utilization stand- 
ards, it is essential to specify the minimum top diameter or other 
characteristics of the main stem for which usable volume is to be 
calculated and to establish a permissible cull percent for classifying 
merchantable and cull material. 

Additional stratifications of volume may help to describe and 
evaluate the timber resource. Classification of species volume by 
tree or log grade is useful. Where timber values are high, as with 
veneer logs and transmission poles, a product tally of volume 
helps. Where values are low, as with fuelwood and fence posts, 
less detail is needed. In analyzing timber volume trends, periodic 
rein ven tori es are useful. If the project is to consider such trends, 
it is desirable to make provision in the initial volume inventory 



$6 RESEARCH IN THE ECONOMICS OF FORESTRY 

for subsequent reinventory work. Data from periodic reinventories 
are especially useful in appraising the effectiveness of all factors 
relating to past changes in the timber resource and in projecting 
future trends and their effect on the forest economy. 

3. Timber growth and drain. The volume of standing timber 
increases through annual growth and decreases through mortality 
and cutting or drain. Growth and drain data provide one means of 
finding out what is happening to the timber resource. Periodic re- 
inventories are another way. Both methods can be used, each 
supplementing the other. 

a. Growth. Gross growth is the term applied to increment 
before deducting mortality. Net growth is the residual increment. 
Decreases in timber volume resulting from cutting are considered 
as drain, and are not involved in gross and net growth computa- 
tions. Two determinations are essential to indicate what is happen- 
ing in growth: the volume increment of all sound live trees and the 
volume loss through mortality or culling by cause and date. Both 
these items, because of the difficulty of making an annual determi- 
nation, are usually expressed as an average annual figure for a 
period of years. Such calculations measure past growth and mor- 
tality. They may also be indicative of future trends, but to predict 
future growth more precisely, other factors such as the approach- 
ing maturity of a stand and changes in growing stock volume and 
composition need to be considered. Growth data may be expressed 
by species and diameter class. 

b. Drain. The volume of standing timber removed as the result 
of cutting is designated commodity drain. It includes both the 
volume of live, sound timber utilized and the damage or waste 
resulting from logging. Two determinations are useful : the volume 
of products removed from the forest and the residual inventory 
volume which has been damaged or felled but not removed. 
Inventory, growth, and drain should each be expressed in com- 
mon volume units and by similar species and diameter groups. 

4. Forest industry. An inventory should be made of (a) the 
number, kind, and location of wood-using plants and other forest 
industry in the area, (b) the kinds and quantities of timber used 
or discarded, (c) the size, type, and installed capacity of wood- 
using plants, (d) the number of employees, and (e) the payroll 
total. Such information shows the volume of timber used in 
various plants, the potential use, and the limitations in utilizing 
less desirable species, sizes, and logging and milling waste. It also 
helps indicate the place of forest industry in the economy of the 
area. 






FOREST ECONOMY AT LARGE 57 

5. Requirements for forest products. What forest products and 
in what quantity and quality are likely to be needed in the future? 
Essentially this is a prediction, and it must take into account such 
factors as population changes, consumer preference, the likelihood 
of substitutes replacing wood, and price trends. Considering such 
relationships, the student tries to prophesy what timber consump- 
tion will be in a given area at a given time in the future, under the 
assumption of optimum economic conditions. 

Methods of obtaining data. Financial limitations and the avail- 
ability of data and working tools have a part in determining the 
methods to be used in obtaining forest-resource and industry data. 
Where forest acreage, timber volume, growth, and drain data 
have been assembled, all that may be needed is an office recapitula- 
tion based on new area boundaries. Where such information is not 
available, field surveys are necessary. The work involved in mak- 
ing acreage and volume determinations can frequently be mini- 
mized by using sampling techniques and aerial photographs. Sam- 
pling will, if skillfully applied, give data to a specified accuracy 
and greatly reduce the number of field observations. Through 
interpretation of aerial photographs it is possible to do much in the 
way of delineating forest and nonforest land, forest cover types, 
and stand-size classes. Also through photo analysis, accessibility 
zones can be determined (49c). 

Timber-volume estimates usually necessitate field work, al- 
though it is possible to obtain some volume data from photo 
interpretation. Volume data can usually be obtained while sam- 
pling for acreage. By taking sample plots within prescribed forest 
classes, only a minimum number of plots is required. The size of 
the sample will depend on the sampling accuracy desired, the 
variation of volume among plots, and the funds available. 

Growth data can be collected while inventorying the timber 
volume by taking increment borings of sample trees and measur- 
ing the periodic growth, or by referring to yield tables. Another 
way to get growth estimates is to make periodic remeasurements of 
trees on sample plots. 

Drain data can be obtained either by inventorying stumps on 
sample plots on cutover lands or by soliciting from industry 
records of the volume of timber cut in each locality and supple- 
menting these data with studies to estimate logging waste. Ad- 
justments in drain data may also be necessary to take account of 
the use of cull and dead timber which may be included in industry 
records. The second method of estimating drain is used most com- 
monly because of its simplicity. However, the first method is 



58 RESEARCH IN THE ECONOMICS OF FORESTRY 

preferable because there is less possibility of overlooking some of 
the drain. 

Information about the forest industry can be obtained from 
published reports in some instances and by undertaking special 
surveys {34). Frequently, published reports do not give all the 
information desired. To the extent that they do, however, the 
job is greatly simplified. Reports published by the U. S. Bureau 
of the Census give data on timber-commodity production by 
species. The Census of Manufactures gives some information on 
employment, payrolls, and volume of production. Surveys of a 
similar nature are sometimes made by other federal agencies, by 
states, and trade associations. Often, however, because of the 
lack of detail or because area boundaries differ, it becomes neces- 
sary to make a mail or field survey of wood-using plants. When 
this method is resorted to, consideration should be given to 
possibilities of sampling if a large number of plants is involved. 

Much of the material used in determining timber requirements 
will come from existing data {go). Usually little or no additional 
field work is needed. Population studies, consumption and price 
trend data, and requirements publications are good sources. For 
related material the reader is referred to topics pi, 03, 03a, 05 
(demand) ; 66, 67 (markets) ; 78, 82 (prices) ; 87, 88 (consumption). 

For other data-collection problems reference is made to topics 
8 (income) ; p (employment) ; 62 (marketing) ; 30 (land use) ; 48 
(timber-management practices); 33, 37 (ownership); 2 (location 
factors); /?, 14 (forest programs). 

Analysis. At this stage the student examines his data and 
interprets their meaning. More specifically, in analysis an evalu- 
ation is made of the timber resource, what it is producing, what 
factors are limiting its output, what benefits are being derived 
from the resource, and to what extent the resource supply will 
meet future requirements. The forest industry is approache( 
analytically from the standpoint of the volume of timber require* 
annually, the relation of industry timber requirements to forest 
yields, the outlook for industrial expansion or contraction, and th< 
need for adjustments in industrial consumption to make more 
effective use of the timber resource. Although a major time- 
consuming task is the collection and compilation of data, th< 
analysis is all-important for it gives meaning and utility to the 
project. 

The analysis consists of two phases: an interpretation of the 
present resource and industry situation, explaining why conditions 
exist and what is their effect on the economy of the area; a pro- 



FOREST ECONOMY AT LARGE 59 

jection of the present situation into the future, pointing to the 
problems involved in attaining a growth goal to meet future 
timber requirements. 

In the interpretation phase, relationships are stressed. Using 
the statistical data assembled, some of the relationships to look 
for are: Is the forest over- or understocked with trees of the species 
and qualities desired? Is there an excess of low-quality growing 
stock, and if so, is the present trend correcting this? Is drain in 
excess of growth, or vice versa, and what are the implications of 
such a situation? Is lack of accessibility resulting in excessive 
cutting on some areas or poor utilization of some species? Are 
there any particular differences in the resource situation by types 
of ownership? For industry, is the current consumption of specific 
products such as sawlogs, poles, veneer logs, and other wood items 
in excess of or less than the forest growth? What species does in- 
dustry need most? Are these available in adequate supply? Is there 
need for new wood-using plants to utilize some species and waste 
material? Are there some parts of the area that could support 
additional wood-using plants or where plants should be discour- 
aged? Is there a need for and do opportunities exist for increasing 
employment in forest industry? 

To evaluate the timber outlook, a growth goal must be set up. 
A growth goal is defined as the amount of growth needed to meet 
national or world timber requirements. The goal is used to meas- 
ure the magnitude of adjustments in resource management and in 
utilization that may be needed. Within a given area, the goal may 
be in excess of local timber requirements and thereby indicate the 
possibility of exporting timber. 

Under the forest conditions prevailing in most parts of the 
United States, there is a wide gap between current timber growth 
and the growth goal. Comparing current growth and the goal 
indicates in what direction management efforts should be pointed 
and what reorientation in industry consumption may be neces- 
sary. The level of current drain will have a powerful effect on the 
problem of meeting the growth goal. In some areas, by adjusting 
drain downward, the growing stock can be built up faster and the 
growth goal met sooner. But there are realistic limits below which 
drain cannot be reduced, as there is a point below which industrial 
production is not financially practical. 

To analyze the growth-drain relationship, it may be useful to 
project an allowable cut for an area through an adjustment period. 
Such a method of analysis shows how and to what extent drain 
may be manipulated so as to sustain cutting on or near a given 



60 RESEARCH IN THE ECONOMICS OF FORESTRY 

level. It will also show what the prospects are for building up 
growing stock, and when the growth goal may be attained. By- 
such analytical processes the student determines if shifts are called 
for in forest-management plans and in existing industry capacity, 
and what additional utilization facilities, if any, are in keeping 
with the growth goal. 

References, (i) Garver, Raymond D.: Aerial photographs in 
forest surveys; Jour. Forestry 46, 2, pp. 104-106; 1948. (2) Hutchi- 
son, S. B., Chairman: Report of the committee on allowable cut, 
required growing stock, and growth goals; U. S. For. Service, 
28 pp., mimeographed; Missoula, Mont., 1948. (3) Kelley, J. G.: 
A timber survey controlled by aerial photographs; Photogram- 
metric Engineering 3, 4, pp. 4-6; 1937. (4) Marquis, Ralph W.: 
The meaning and methods of analysis; Pacific Northwest For. and 
Range Exp. Sta., 12 pp., multilithed; Portland, Ore., 1947 (?). 
(5) Schumacher, F. X., and R. A. Chapman: Sampling methods in 
forestry and range management; Duke Univ. School Forestry 
Bui. 7; 213 pp.; Durham, N. C, 1942. (6) Vaux, Henry J.: The 
meaning and methods of analysis; Cal. For. and Range Exp. Sta., 
10 pp., mimeographed; Berkeley, 1947. (7) Wilson, R. C: Photo 
interpretation aids for timber surveys; Jour. Forestry 46, 1, pp. 
41-44; 1948. 

FLOW OF ECONOMIC ACTIVITY 

The following five topics are concerned with the measurement 
and evaluation of the inputs and outputs of the forest economy at 
large. Inputs as attributes of the agents of production are con- 
sidered in Chapter III ; in the present section they enter as a tool 
in appraising some of the relationships between the forest economy 
and the general economy. Special cases of the subject of outputs 
will be found in the section on Requirements in Chapter VI. 

The first topic, 7, considers the measurement of the forest- 
resource and forest-industry sector of the whole economy. Topics 
8 and 9 discuss the determination of income and employment as 
aggregates. In the last two topics, the viewpoint is essentially 
dynamic, topic 10 relating to past changes in the forest economy, 
and // relating to future changes. 

7. THE FOREST ECONOMY IN RELATION TO OTHER BRANCHES OF THE 
ECONOMY— Wassily Leontief 

Purpose. To define the position of forestry, including forest 
industry, within the national economy by describing it in terms of 



FOREST ECONOMY AT LARGE 6 1 

(a) the flow of commodities and services which forestry, as a 
distinct type of economic activity, supplies to all the other 
branches of the economy, and (b) the flows of other commodities 
and services which it, in its turn, receives from these other 
sectors. 

The results of such research will be useful in analyzing and 
explaining interactions between the forest economy and other 
segments of the economy, and as basic data in exploring employ- 
ment (9) and business cycle (10) relationships. Similarly, the 
results will be invaluable in program evaluations {14) where indi- 
rect or secondary effects must be given prominent consideration. 

A research program aimed at detailed quantitative inquiry 
into the position of the forest economy in relation to other types 
of economic activity must obviously be closely integrated with 
similar studies of the other parts of the national economy. It can 
also profit from the experience gained in the development of such 
other studies (see references). 

Approach. This type of research sometimes focuses attention on 
the income streams which flow from forests and forest industry. 
Conventional income statistics as applied to forestry concern them- 
selves primarily with the actual or imputed stream of payments 
obtained by ultimate income receivers — farmers, owners of lumber 
companies, etc. — in exchange for direct labor, capital, or entre- 
preneurial services contributed by them to the forest economy {8). 

Although very useful, the income approach has two principal 
limitations: 

1. While it throws light on the direct relationship between the 
income-receiving household sector of the economy and forest re- 
sources, it does not supply information necessary for the study of 
the indirect connections between the forest economy and other, 
especially the more removed, branches of the national economy. 
As examples of indirect relationships, one might mention the em- 
ployment in the railroad and other transportation industries re- 
sulting from the transportation of lumber and various lumber 
products; looking in the opposite direction, it is possible to estab- 
lish the dependence of the forest industry itself on, say, the 
demand for clothing, via rayon and cellulose. 

2. Most income studies are presented in aggregative monetary 
terms and thus do not bring out the basic material, or technologi- 
cal, relationships which in the last analysis determine the position 
of forestry within the national economy. 

The more comprehensive approach discussed here involves a 



62 RESEARCH IN THE ECONOMICS OF FORESTRY 

detailed and systematic quantitative description of the input- 
output structure of the forest economy in its various branches. In 
its completed form, such a description shows the quantities of the 
specific products of other sectors of the economy which the forest 
economy has to absorb per unit of each kind of its own outputs. 
A corresponding description of the input requirements of the other 
sectors, in terms of forest products, should, strictly speaking, be 
undertaken coordinately. 

The flows can be described either in terms of actual physical 
units — board feet of lumber, cords of wood, man-hours of work, 
number of units of firefighting equipment — or their monetary 
counterpart — the revenue received from sale of various products, 
the cost of labor, etc. In some instances, such as in the case of 
fence posts taken by farmers from their own woodlands, the 
monetary counterparts of service and commodity flows do not 
actually exist and they have to be determined by a more or less 
arbitrary procedure of indirect valuation. 

As is the case of many other types of production, the output 
flow of forest products depends not only on the flow of requisite 
inputs but also on the presence of large stocks of resources. In 
other industries, productive stocks consist mainly of buildings, 
machinery, and inventories of raw materials and semifinished 
products. But in addition to these classes of productive stocks, the 
forest economy depends heavily on a further class, consisting 
primarily of standing timber of kinds of distinct accessibility and 
in various stages of development. 

Thus the description of the "stock-to-flow" relationships is as 
important for the analysis of the input-output structure of the 
forest economy as the study of the "flow-to-flow" ratios. For 
example, to produce an annual flow of so many board feet of 
lumber, the forest economy requires a stock of standing timber, 
sawmills, transportation facilities, and lumber inventories, and 
also a flow of so many man-hours of planting, cutting, fire-control, 
logging and milling labor, and transport; so many tons per year 
of pest-controlling chemicals, sawmill fuel, truck fuel, saws, and 
wedges; etc. 

An accurate knowledge of all such relationships is particularly 
indispensable for understanding the dynamic process of expansion 
and contraction of the basic productive stock of the standing 
forest. 

To be fitted into the general picture of the whole economy, the 
description must be compiled in accordance with the special 



FOREST ECONOMY AT LARGE 63 

commodity and industry classification developed by the Bureau of 
Labor Statistics in cooperation with the Department of Agri- 
culture and the Division of Statistical Standards in the Bureau of 
the Budget, in connection with its large-scale input-output 
study of the American economy for the year 1948. 

The forest economy is here taken to embrace a number of 
interrelated " industries" engaged in production and utilization of 
various types of forest products. These include timber holding and 
growing, logging, manufacturing of forest products (lumber, pulp, 
etc.), and industries concerned with the utilization of other forest 
products. They should not be bundled together for purposes of the 
structural analysis described above. On the contrary, by describing 
the input-output structure of each of these activities separately, 
indispensable empirical material is secured which permits an 
analysis of the mutual interdependence between the component 
parts of the forest economy while taking into account at the same 
time their relationships to the rest of the national economy. 

The "fit" between the standard commodity and industry classi- 
fications on the one hand and the forest economy as here defined 
will not be perfect. For example, certain marketing activities 
included as part of the forest economy may not be separable 
within the framework of the standard categories. Nevertheless, 
the structure which can be described in terms of such categories 
will be a usable equivalent of the forest economy. 

Sources of data. The basic quantitative information required 
for the description of the input-output structure of the forest 
economy can be obtained from two different types of sources: 

1. General statistical data on quantities of various outputs and 
the amounts of principal inputs, as published by various national 
and local statistical agencies. 

2. Special technical forest-management and forest-industry 
studies. 

General statistical information of the first kind has the advan- 
tage of better coverage but usually is deficient in details, while the 
direct technical information usually lacks in representativeness 
and coverage. Comparison and combination of blown-up and 
specialized data with over-all statistical figures will, in many 
instances, give the most reliable results. In many cases, however, 
development of entirely new primary sources of information will 
be necessary. 

Method of analysis. Once the basic data necessary for a system- 
atic description of the input-output structure of the forest eco- 



64 RESEARCH IN THE ECONOMICS OF FORESTRY 

nomy have been collected, they can be inserted in the national or 
regional input-output tables and thus tied up with the similar 
information pertaining to all the other branches of production 
and consumption. Thus integrated in the over-all picture of the 
economy, this information can be used to analyze and explain the 
effects of various changes taking place in other sectors upon the 
forest economy, on the one hand, and the effects of developments 
within forestry itself upon the rest of the economy, on the other. 

How will an increased rate of residential building affect the 
demand for various types of construction lumber? What effect 
will the introduction of new preservatives have on the demand for 
railroad ties and telephone poles? How will a reduced supply of 
certain forest products affect the activities of industries directly 
or indirectly depending on the flow of such products? All such 
questions and many others can be intelligently answered only if 
detailed information on the productive structure of the forest 
economy is systematically tied up with similar information con- 
cerning the rest of the economy. 

References. (1) Cornfield, Jerome, W. Duane Evans, and Mar- 
vin Hoffenberg: Full employment patterns, 1950: parts 1 and 2; 
Monthly Labor Review 64, 2 and 3, pp. 163-190, 420-432; 1947. 
(2) Evans, W. Duane, Jerome Cornfield, and Marvin Hoffenberg: 
American economy under full employment, a pattern for 1950; 
Dun's Review 55, 2231, pp. 17-19 et seq.; 1947. (3) Evans, W. 
Duane, and Marvin Hoffenberg: The inter-industry relations 
study for 1947; Review of Economics and Statistics 34, 2, pp. 97- 
142; 1952. (4) Hoffenberg, Marvin: Employment resulting from 
U. S. exports; Monthly Labor Review 65, 6, pp. 675-678; 1947. 
(5) Leontief, W. W.: Structure of American economy; xvi, 264 
pp.; New York, rev. ed., 1951 . (6) Leontief, Wassily: Some basic 
problems of structural analysis; Review of Economics and Statis- 
tics 34, 1, pp. 1-9; 1952. (7) Leontief, W., et al: Studies in the 
structure of the American economy; x, 561 pp.; New York, 1953. 

8. INCOME FROM THE FOREST ECONOMY 

To determine the amount of income flowing from the forests 
and forest industry of an area, its changes over time, and its 
distribution among the factors of production. Income is defined 
as the flow of benefits to the people of the area in the form of goods 
and services during a period of time, usually measured in terms of 
money — wages, interest, rent, and profits. As a sample of this 
line of research, one method of estimating the aggregate income 



FOREST ECONOMY AT LARGE 6$ 

payments attributable to timber resources and industry in a state 
in a given year will be described briefly. 

First, the value of raw timber products produced in the study 
year is computed. This is done through multiplying the output of 
logs, bolts, stumps for naval stores, maple syrup, etc., by the 
average unit value for each product at the mill or local point of 
delivery. Forestry agencies, trade journals, and state severance-tax 
records are some of the possible sources of basic data. Then a 
computation is made of the value added by manufacture for 
lumber, veneer, cooperage, lumber products, pulp and paper prod- 
ucts, naval stores, wood preserving, etc. These values are 
published biennially by the U. S. Census of Manufactures. 

Second, all the calculated values are reduced to terms of income 
payments. This is difficult to do accurately. Workable approxima- 
tions, however, can be achieved. Value of raw timber products 
can be reduced roughly to income payments by subtracting the 
estimated value of timber products used on the farm but never 
sold. Value added by manufacture should be reduced by the 
income which is credited to various service industries and non- 
manufacturing activities in the form of taxes, insurance, rent, and 
the like. For example, the 1939 value added by all manufacture in 
the United States, which was 25 billion dollars, reduces to 18 
billion dollars of income from manufacturing. Adjustment may 
also be necessary to account for cross-boundary flows of income. 

Calculated income from timber products may be compared with 
income payments from the rest of the economy. Income payments 
attributable to government, trades and services, agriculture, 
manufacturing, and miscellaneous sources are listed annually by 
states in the U. S. Department of Commerce Survey of Current 
Business. Income from timber products can be introduced into 
this list on the assumption that it is a part of manufacturing and 
miscellaneous sources. 

9. EMPLOYMENT IN THE FOREST ECONOMY— Henry J. Vaux 

Purpose. To determine the amount of employment arising in the 
forests and forest industries of an area and its changes over time. 

Relation to the field. Forest industry competes with many 
other industries and with agriculture for much of the labor which 
it employs. Economic forces at work in the economy at large are 
transmitted to the forest economy through the employment 
channel. At the same time, the nature and amount of forest em- 
ployment is one index of the extent to which forest resources 



66 RESEARCH IN THE ECONOMICS OF FORESTRY 

contribute to economic welfare. Thus employment is one of the 
major links relating the forest economy to the general economy. 

Some of the employment arising from forests and forest industry 
is primary in the sense that the labor is used within the industry 
itself. Additional employment, usually termed secondary, may 
arise in nonforest industries because of the effects of the forest 
economy on transportation, manufacturing, and marketing ac- 
tivities which are not an integral part of the forest economy. Thus 
a study of employment provides basic data on some of the major 
inter-industry "flows" (7), on potentialities of the forest economy 
(//), and on aspects of such evaluative problems as topics 12, 
14, and 17. The research may draw on a number of studies in 
Chapter III which deal with labor as an agent of production, but 
the present problem is distinguished from these studies by its 
emphasis on labor as a primary link between forest and nonforest 
activities. 

Measurement of employment. The definition of employment 
must be adapted to the particular problem in hand, and perhaps 
modified in the light of definitions used in secondary sources of 
data. However defined, measurement of employment is compli- 
cated by the presence of part-time and other short-period ar- 
rangements as a characteristic of forest employment (22). Much 
employment in forest management, logging, and even lumber 
manufacture is highly seasonal in nature. Moreover, the timing 
of certain other forest operations is extremely flexible, so that 
such work can be undertaken when demands for labor outside 
the forest are slack. Forest employment may thus appear as a 
supplement to some other occupation. Consequently, it is im- 
portant to distinguish between employment which is substantially 
full-time, that which is seasonal but which supplies a major por- 
tion of the worker's livelihood, and that which is largely incidental 
or supplementary to some other occupation. 

Similarly, employment should be segregated by classification 
in accordance with the type of work done or the type of worker 
employed (see also 21). Such a classification may be quite simple 
— for example, merely segregating production workers from other 
workers. Or it may go further by breaking down employment into 
a number of different levels of skill or type of activity. 

The question of the units in which employment should be ex- 
pressed is a closely related problem. Where part-time employment 
is significant, expression of employment in number of workers is 
difficult and demands very careful interpretation. For this reason, 
man-days or man-years — equivalent employment — may provide 



FOREST ECONOMY AT LARGE 6j 

a preferable unit of measurement. Regardless of the unit chosen, 
conversion from one type of unit to another is often necessary 
because of variations in practice among reporting agencies. Such 
conversion factors must ordinarily be calculated to fit the problem 
in hand, making use of available information on number of work- 
ing days per year, average hours worked per week, and related 
statistics. 

Developing the data. Secondary data on the kind, volume, and 
duration of employment in the forest economy may be obtained 
from such public agencies as the Bureau of the Census, Bureau of 
Labor Statistics, Department of Agriculture, and state depart- 
ments of labor and welfare. However, these data will usually be 
limited in the scope of employment covered and the detail in 
which it is described. They will frequently have to be supple- 
mented by collection of employment information from primary 
sources. Topics ig and 23 give helpful suggestions for selecting 
sample plants, classifying jobs, and related problems of getting 
primary data. 

Additional information may be derived indirectly through the 
use of output statistics in conjunction with the labor-requirements 
factors described in topic ip. Here, caution is needed to insure 
that the requirements factors used are truly representative of all 
the producing units contributing to total output. Because labor 
requirements may vary rather widely from plant to plant, indirect 
employment data may be more difficult to interpret than those 
obtained from primary and secondary sources. 

Analysis of data. After the study area has been denned and sta- 
tistics of employment in each segment of the forest economy — 
forest management, logging, sawmilling, lumber remanufacture, 
pulp and paper manufacturing, etc. — have been compiled, data 
should be tabulated by yearly totals, and where possible by sub- 
yearly intervals, such as months. The yearly data may then be 
used to determine (a) aggregate employment, (b) trends in 
primary employment, (c) significant changes which may be taking 
place in the distribution of this employment among the several 
segments of the forest economy, (d) changes in the proportion of 
forest employment compared with all employment, and similar 
relationships. Observed changes in employment may then be re- 
lated to causal factors such as changes in timber supply, other 
shifts in inter-areal comparative advantage, development of inte- 
grated utilization, or other factors. 

From the monthly or other subyearly totals, seasonal indexes 
of primary employment may be calculated. These may then be 



68 RESEARCH IN THE ECONOMICS OF FORESTRY 

interpreted in the light of weather, seasonality of competitive em- 
ployment, and similar related factors. Whenever such seasonal 
analysis is possible it will prove invaluable in interpreting ag- 
gregate yearly employment in the light of its stability, its relation 
to employment in nonforest economic activity, and the extent to 
which forest employment is primary or supplementary from the 
standpoint of the labor involved. 

A much more difficult stage of the analysis concerns the treat- 
ment of secondary employment. Sometimes an effort is made to 
attribute such employment to the primary industry which "gener- 
ates it". However, this may involve questionable assumptions. 
For example, where the livestock industry depends on forest 
ranges for summer grazing, the extent and efficiency of such use of 
forest land obviously influence the amount of employment in the 
livestock industry itself. How much of such " secondary" em- 
ployment should be included in the volume of employment 
" arising in the forests"? At a still further remove, in a forest- 
industry community how much of the employment in essential 
service industries — e.g., retail trade — "arises" in the forest? 

Despite this difficulty, secondary employment is still of great 
importance because in it are focused some of the most direct 
ties between the forest economy and the economy at large, and 
because particular consideration may need to be given to this 
aspect of employment in connection with special problems, such 
as those of unemployment. Secondary employment is for most 
purposes not directly additive to primary employment. Hence it 
should be clearly segregated from estimates of employment within 
the forest economy itself. 

Both the significance of secondary employment data for forestry 
problems and the method of analyzing them will depend on the 
nature of the particular problem situation. The analysis must 
examine the factors which determine secondary employment, and 
evaluate the importance of the forest economy as one of these 
factors. This may best be done by considering the various classes 
of secondary employment — e.g., servicing forest communities, 
transportation of forest products, manufactures made of wood — 
and the relationship between the forest economy and such classes 
of employment. 

10. ECONOMIC FLUCTUATIONS AND THE FOREST ECONOMY— John A. 
Zivnuska 

Purpose. To measure the specific cycles in variables character- 
istic of the forest economy, to analyze the relationship of these 



FOREST ECONOMY AT LARGE 69 

cycles to business and building cycles, and to determine the sig- 
nificance of this relationship to the forest economy. 

Scope. A brief statement of the basic hypothesis of cyclical 
studies in forestry will serve to indicate the wide scope of possible 
studies in this field. The important economic fluctuations in a 
nation's economy give rise to fluctuations in demand for the vari- 
ous forest products. These changes in demand, modified by 
changes in inventories (77) and combined with other factors 
influencing production policies of forest-product firms (61), give 
rise to changes in production. Associated with these related 
fluctuations in demand and production will be corresponding 
fluctuations in a variety of factors within the forest economy, 
including employment, prices, substitution of grades and species, 
gross incomes, costs, net incomes, management practices, and 
community welfare. 

Thus the cyclical aspects of nearly any phase of the economics 
of forestry might be separated out for intensive study. To illus- 
trate the type of problem which is involved and one possible line 
of approach, attention in this statement is focused on production. 
Individual studies falling within the scope of even this limited 
segment of the field include a diversity of more exact objectives. 
The study may cover one, several, or all grades and species of the 
product; the area encompassed may be a state or a part of a 
state, a forest region, or a nation; interest may center on the 
direct measurement of fluctuations in the production of a single 
timber product or on the comparative sensitivity of the produc- 
tion of different timber products or producing regions to economic 
fluctuations; and the information derived may be intended for use 
in broad problems in forest economics and policy or for solution 
of problems in enterprise economics and management procedures. 

Timber products can be expected to differ greatly in their rela- 
tive sensitivity to general economic fluctuations. For example, 
shingles and lath are consumed entirely in building, while spruce 
and fir pulpwood are consumed primarily in nonbuilding activi- 
ties; wood pulp is a nondurable good, while lumber is a durable 
good. This statement is limited to national lumber production, 
which, because of the consumption pattern of lumber, can be 
expected to be sensitive to both building and general business 
activity. 

Definitions. Specific cycles are recurrent but not necessarily 
periodic fluctuations in individual time series in which the se- 
quence of expansion, recession, contraction, and revival is re- 
peated in a recognizable pattern. Business cycles are cyclical 



70 RESEARCH IN THE ECONOMICS OF FORESTRY 

fluctations found in the aggregate economic activity of nations 
that organize their work primarily in business enterprises; they 
appear through the interrelated fluctuations of innumerable 
specific cycles ; in duration they vary from more than one year to 
ten or twelve years. Building cycles are cyclical fluctuations in the 
volume of private residential, industrial, and commercial con- 
struction, alteration, and repair. Two types of building cycles 
have been recognized: short cycles of about the same length as 
business cycles, and long cycles with a duration of fifteen to 
twenty years. 

Relation to the field. The effects of economic fluctuations on 
lumber production impinge on many of the economic and 
sociological problems of forestry. The cyclical pattern as well as 
the trend must be recognized in the study of historical problems 
(4) , in the evaluation of current conditions, and in the projection 
of future probabilities {88). The possibilities of stable manage- 
ment programs are directly affected by the sensitivity of the 
enterprise to economic fluctuations. Recognition of fluctuating 
markets is pertinent to management decisions concerning cutting 
policies and investment programs (58). The concept of sustained 
yield must make allowance for cyclical fluctuations {48). The 
determination of economic margins of utilization is affected by 
the level of the cycle in production {57b). Fluctuations in the 
ability of forest properties to pay annual taxes are of significance 
in studies of land tenure (34) and public finance. Fluctuations in 
income are of significance in the development of long-term credit 
programs (38). Recognition of the effect of economic fluctuations 
is crucial in the evaluation of the possibilities of employment (9) 
and of stability for forest communities (//). 

In addition, the magnitude and economic importance of the 
American lumber industry make it possible that such studies may 
add significantly to the knowledge of business and building cycles. 

Data. For the statistical analysis of cycles, data should be homo- 
geneous as regards source, method of quotation, and coverage, 
and should extend over a sufficient period to include several cycles 
of the duration under study. Monthly time series permit more 
detailed and accurate analysis than annual time series. For a 
detailed analysis of cycles in lumber production it would be 
desirable to have homogeneous monthly series for total lumber 
production, for hardwood and softwood production separately, 
and for each of the major producing regions and more important 
species. 



FOREST ECONOMY AT LARGE 7 1 

Actually, only limited data on lumber production which meet the 
exacting requirements of cyclical analysis are available. It may 
thus become necessary to tie in or connect several discrete series 
to give the data continuity and comparability over a long period. 
Annual lumber-production statistics have been compiled by the 
Bureau of the Census with the cooperation of the Forest Service 
since 1904, but these data are not directly comparable since they 
are subject to variation in thoroughness of coverage and in mini- 
mum size of mill used as a source. For cyclical analysis these data 
should be adjusted to a more consistent form by use of the de- 
cennial Census data as bench marks and of various supporting 
evidence such as minimum size of mill included and expenditures 
on field checks. Such adjusted series for total national lumber 
production are available from the U. S. Forest Service. If it is 
desired to use the species, state, or regional census data, a necessary 
preliminary step would be such adjustment of the series. 

The seasonally adjusted index of lumber production of the 
Federal Reserve System available for the period since January 
191 9 provides a monthly time series of total lumber production 
well adapted to cyclical analysis. In addition, a considerable num- 
ber of monthly series for particular species or regions are available 
from the various lumber manufacturers' associations. In practically 
all cases, however, such association series do not meet the neces- 
sary standard of homogeneity, and would require thorough testing 
and careful adjustment before they could be used for cyclical 
analysis. 

The principal problem in business cycle measurement for the 
investigator in studies of this type is that of selection from the 
wide variety of data and studies bearing on this question. The 
studies of the National Bureau of Economic Research have led 
to the presentation of carefully developed dates for the timing of 
cycles in comprehensive business activity, but in their present 
form provide no direct measure of amplitude of such "reference" 
business cycles. Both timing and amplitude of cycles can be 
determined from simple indexes such as those of railway trans- 
portation or bank clearings; from composite indexes such as the 
Federal Reserve index of industrial production; or from indexes 
of business conditions such as Ayre's index of general business 
activity. In most cases, however, such indexes apply primarily to 
particular areas of business rather than to total business. The final 
choice of business cycle data must be determined by the methodol- 
ogy of analysis and the detailed needs of the study. For example, 



72 RESEARCH IN THE ECONOMICS OF FORESTRY 

if the study is particularly concerned with questions of timing, use 
of the National Bureau data would be desirable, while if major 
interest is attached to the amplitude of fluctuation shown by the 
lumber industry as contrasted with other industries, use of the 
Federal Reserve index of industrial production supplemented by 
individual indexes for several major industries would be 
preferable. 

For the measurement of building cycles, the most expeditious 
procedure appears to be to use the results of published studies such 
as those listed below among the references. These data may be 
supplemented by building-permit statistics compiled by the 
Bureau of Labor Statistics and in the F. W. Dodge Corporation 
reports on construction in 37 states east of the Rocky Mountains. 

Analysis. Two major forms of statistical determination and 
measurement of specific cycles have been developed: the conven- 
tional method of decomposition of time series, and the more re- 
cently developed technique of the National Bureau of Economic 
Research. Decomposition of time series involves the determination 
of seasonal variation and of trend by any of several well-known 
statistical procedures. The original values are expressed as standard 
deviation units. These deviations are presumed to show cyclical 
and erratic fluctuations, and may or may not be smoothed. The 
National Bureau method involves the elimination of seasonal 
variation followed by the direct marking off of specific cycles on 
the basis of personal evaluation in accordance with certain arbi- 
trary rules. These specific cycles are treated as units of economic 
experience, each with its own base and with the intracycle trend 
preserved. 

Either method can be used in analyzing cycles in lumber pro- 
duction. The decomposition of time series has the advantages of 
suitability to forceful graphic presentation, of the elimination of 
possible confusion due to the effect of intracycle trend, and of 
common usage, but involves the considerable logical and statisti- 
cal difficulty of determining a wholly defensible trend. Use of the 
National Bureau method has the advantages of bringing into the 
open the considerable element of personal judgment implicit in 
any cyclical analysis, of preserving the cycle more nearly in the 
form in which it was actually experienced, and of presenting the 
results in a form well adapted to direct comparison with the large 
volume of work now being done by the National Bureau. Choice 
of method should be made only after careful consideration of the 
data to be analyzed, the specific purposes of the investigation, 
and the manner in which the results are to be presented. 



FOREST ECONOMY AT LARGE 73 

The method of analysis of the apparent relation between cycles 
in lumber production and other economic fluctuations will be 
largely determined by the method used in determining the specific 
cycles for lumber. If the decomposition of time series is used, the 
simplest method is a direct graphic comparison of the several 
time series which are of interest. A more exact method lies in the 
use of correlation analysis and the Pearsonian correlation coeffi- 
cient. This technique can also be used effectively in determining 
"leads" or "lags" among the several time series. 

If the specific cycles are determined by the National Bureau 
method, correlation analysis would not be a satisfactory tech- 
nique, since the presence of intracycle trend would lead to a spuri- 
ous element in the correlation. Instead, the time series are also 
divided into reference cycles on the basis of the reference dates of 
business cycles determined by the National Bureau. Conformity 
to business cycles is then tested by a comparison of specific cycles 
and reference cycles and by the use of "indexes of conformity." 
With appropriate modifications the technique can be used for the 
direct comparison of any two time series. 

For the problem of investigating the relationship between cycles 
in lumber production and business and building cycles, the tech- 
niques of multiple-correlation analysis do not appear promising. 
Both theoretical reasoning and statistical evidence indicate a 
substantial degree of correlation between business and building 
cycles. If such a degree of correlation does exist between the inde- 
pendent variables, the results would not be favorable for logical 
deductions from the regression equation. 

Under these circumstances a more qualitative approach to the 
problem may be developed on the basis of the close relationship 
between lumber production and its consumption pattern. The rela- 
tion of each type of consumption to either business or building 
cycles can be determined on logical grounds supported by statisti- 
cal testing of conformity. With this analysis and a knowledge of the 
relative importance of the several types of consumption, it is 
possible to develop a qualitative determination of the relation of 
these cycles to changes in consumption. With due allowance for 
lag and the important effects of inventory changes (//), the rela- 
tion of the fluctuations in lumber production to business and 
building cycles can then be developed analytically in turn. 

Since the volume of timber logged on lumbering operations is 
closely adjusted to production at the mill, the changes in lumber 
production provide an accurate index to changes in the volume of 
sawlogs removed from the forest. Thus the results at this stage 



74 RESEARCH IN THE ECONOMICS OF FORESTRY 

of the analysis should be useful in the consideration of many ques- 
tions involving the forest economy at large. 

References. The literature of business cycles is voluminous and 
well known. For a simple introductory statement, see (i) Estey, 
James A.: Business cycles; xvii, 544 pp.; New York, 2nd ed., 1950. 

The more detailed studies of building cycles include the follow- 
ing: (2) Long, C. D.: Building cycles and the theory of investment; 
xvi, 239 pp.; Princeton, N. J., 1940. (3) Newman, William H.: 
The building industry and building cycles; Univ. Chicago Jour. 
Business 8, 3, pt. 2; ix, 73 pp.; 1935. (4) Riggleman, John R.: 
Building cycles in the United States, 1 875-1932; Jour. American 
Statistical Ass'n 28, 182, pp. 174-183; 1933. (5) Warren, George 
F., and Frank A. Pearson: World prices and the building in- 
dustry; v, 240 pp.; New York, 1937. 

The literature of cyclical measurement is also extensive. For 
an example of an excellent introduction to the decomposition of 
time series, see (6) Mills, Frederick C: Statistical methods; xix, 
746 pp.; New York, rev. ed., 1938; Chapters VII, VIII, and XL 
For a more detailed statement, see (7) Davis, Harold T.: The 
analysis of economic time series; xiv, 620 pp.; Bloomington, Ind., 
1 941. The analytical methods of the National Bureau and the 
general problem of cyclical measurement are presented by (8) 
Burns, A. F., and W. C. Mitchell: Measuring business cycles; 
xxvii, 560 pp.; New York, 1946. 

11. POTENTIALITIES OF THE FOREST ECONOMY— Ralph W. Marquis 

Purpose. To evaluate the forest-land resources and forest-in- 
dustrial opportunities of an area in terms of potential income and 
employment from the forest economy. For the sake of brevity, 
the discussion will be limited to a forest economy devoted to the 
production and utilization of timber. A similar analysis could be 
applied to the production and utilization of grazing resources, 
naval stores, recreational and watershed services, and other forest 
products. 

The purpose is not to forecast industrial development based on 
timber resources. Rather, it is to determine the level of industrial 
development that could be realized in an area, measured in terms 
of income or employment, that would result from assumed con- 
ditions of timber production and utilization. One set of assump- 
tions might be a full realization of potential growth through in- 
tensive forestry practice, full utilization of all timber, and the 
remanufacture of all raw material to the final stage of finished 
consumers' goods. It will be more realistic, however, to assume a 



FOREST ECONOMY AT LARGE 75 

volume of annual growth that can be realized under management 
practices that are economically feasible and levels of utilization 
and remanufacture that are similarly economically feasible in 
view of transportation costs, requirements for products, and com- 
petition from other areas and products. 

Relation to the field. This study is related to almost every other 
field of study in forest economics. For example, the forest potential 
will depend on the use of land for forest or nonforest purposes 
(jl) and on the economic intensity of management of the forest 
land (42, 4f). The volume of timber available for manufacture in 
an area will depend on the pattern of ownership, by class and by 
residence (j7). The economics of harvesting and utilization (e.g., 
57) help to determine the industrial potential, as do demand and 
supply and factors affecting competition. The delineation of for- 
estry areas (/), the measures of income and employment from the 
forest economy (8, <?), and the evaluation of private forestry 
programs (/?) are closely related. In turn, an evaluation of forest- 
industrial opportunities will help to determine labor and capital 
supplies (21, 25) needed to achieve the potential level, the degree 
of integration of industry needed (59, 60), and the part public 
cooperation can play in reaching this potential level (14). 

Definitions. An area may be a county, a state, a region, or a 
river basin. For most effective use of forest-resource data its 
boundaries should be county lines. It should be large enough to 
constitute a self-contained forest-industry organization. It should 
not be so large as to include areas varying greatly in forest re- 
sources or logging and manufacturing methods. 

Potentialities mean the levels of production from forest land 
and forest industries that will result in permanent production on 
a profitable basis and provide the maximum employment and 
income to the area consistent with permanent production and with 
profit. These levels, established first in terms of physical units 
of production, may later be expressed in terms of employment 
and income. 

Employment means the number of full-time employees in woods 
and in plants classed as forest industries, and the full-time equiva- 
lent of part-time employment provided by the forest economy. 

Forest industries are those engaged primarily in growing, har- 
vesting, and manufacturing timber. Forest industries do not in- 
clude the industries dependent on the forest industries, such as 
plants making sawmill equipment, or service industries in saw- 
mill towns. They do not include government agencies. 

Income is defined in topic 8. 



j6 RESEARCH IN THE ECONOMICS OF FORESTRY 

Procedure — data and methods. An evaluation of the forest- 
land resources and forest-industrial opportunities of the area will 
be based on the volume of timber that the forest land can produce, 
the volume of timber that can be utilized efficiently and econ- 
omically, and the degree to which fabrication and remanufacture 
can economically be carried beyond the stage of raw-material 
production. 

I. The supply of timber. The ultimate limit to the expansion 
of the forest industries of an area is a physical one: the annual 
supply of logs that can be produced and utilized. The practice of 
over-cutting can increase the forest-industrial potential for 
a limited time, but the object of these studies is to determine the 
forest-industrial potential on a continuing and permanent basis. 

To determine the annual volume of timber production on a 
sustained-yield basis, an intensive analysis should first be made of 
timber-resource data. In most areas these will be available from 
forest surveys. The analysis will include a study of forest land 
areas and timber volume, species, age, and quality. From these 
data an estimate can be made of the volume and character of 
timber that can be harvested annually on the basis of present 
standards of utilization in the woods and present standards of 
forest management in accordance with management for sustained 
yield. This allowable cut may then be increased to reflect ad- 
ditional growth that would be realized through more intensive 
management that is judged to be economically feasible and 
through more intensive utilization of timber by salvage logging, 
thinnings, reduction of waste in logging practices, and similar 
improvements. 

An analysis of the ownership pattern in the area will be needed 
to determine the volume of timber that will be available for 
manufacture in the area. In addition to the usual classification of 
ownership by public and private agencies, a study of county 
records may be made to determine the amount of forest land in 
private ownership which can reasonably be expected to provide 
timber for manufacture in the area. Similarly, it will be necessary 
to discover the forest land located outside the area but owned by 
or tributary to operators of the area, and to determine the prob- 
able volume of annual imports of logs and other raw materials 
based on these holdings and on topographical and transportation 
conditions that will influence the movement of logs into the area 
for manufacture. 

From these studies, a determination can be made of the prob- 






FOREST ECONOMY AT LARGE 77 

able employment in administration, protection, road construc- 
tion, cruising, and other forest management and pre-logging ac- 
tivities; the probable employment and income from logging in the 
area including the production of poles, piling, posts, hewn ties, 
fuelwood and other products not further processed; and a measure 
of the net annual volume of timber available for manufacture in 
the area both on the basis of present conditions and at the po- 
tential level which is economically feasible. 

2. Present industry and utilization. As a basis for estimating 
the production at the potential level, a careful study should be 
made of the existing industries in the area. Adequate records of 
local lumber, pulp, and plywood production in an area will 
usually be available. Information on the remanufacturing in- 
dustries may require original studies. The type of products and 
the degree of refinement in manufacture should be determined 
for these industries, and the capacity of all processing plants 
should be determined. A record of employment required to manu- 
facture the different products as measured in standard units of 
production will provide current conversion factors which can be 
modified for use in estimating the volume of employment at the 
potential levels of production under assumed future man-hour 
productivity and future proportioning of labor and capital in the 
productive process. The integration of different operations and 
functions may be examined and the relation of industrial inte- 
gration to the full utilization of timber analyzed. A summary 
should be made of the extent to which timber is utilized in manu- 
facturing plants at the present time, the manner in which so- 
called woods and mill waste is used or disposed of, and the volume 
of presently unused material that might serve as a basis for ex- 
panded manufacture. 

3. Physical opportunities for expanded industries. With the 
use of these findings, a determination may be made of the op- 
portunities to expand industry on the basis of a reduced or in- 
creased production of logs from timber stands; an increased utili- 
zation of woods waste; an increased or more effective utilization 
of mill waste; closer integration of different processes such as the 
manufacture of lumber, pulp, plywood, and building board to 
obtain the optimum combination of products; increased refine- 
ment in the processes of manufacture; and new industries and 
products that could be developed to provide full utilization. This 
study should analyze the changes needed in the physical plant to 
permit industrial expansion. It should determine the areas from 



78 RESEARCH IN THE ECONOMICS OF FORESTRY 

which supplies of woods and mill waste could be obtained, and 
analyze problems of concentrating this waste. It should deter- 
mine the products and processes that could utilize the material 
available, and indicate the type of processing plants that could 
use and refine raw material more effectively. 

4. Economic opportunities for expanded industries. This phase 
of the study will depend on the information made available from 
the studies outlined above and in addition will explore the eco- 
nomic problems and opportunities related to a fuller utilization 
of the material available on a physical basis. 

The economic analysis should approach the problem of ex- 
pansion from two points of view. It should adopt the business- 
man's approach and develop probable cost-price relationships. 
It should also consider the effects of alternative lines of industrial 
activities on the entire economy of the area. 

Each of the industries that could be developed physically to 
provide additional industrial employment and income should be 
analyzed to determine the economic feasibility of expansion. This 
will involve an analysis of production costs and a consideration 
of market opportunities for traditional or new products of the 
area. This in turn will require a consideration of local, national, 
and foreign trends in consumption and production and the com- 
petitive position of the area's producers in the markets for each 
timber product and for competitive substitutes. The efficiency 
of present marketing methods and the opportunities for increased 
returns and expanded production under alternative marketing 
methods and organizations must also be considered. 

This appraisal of economic opportunities for expansion will 
be the most difficult to make, and there is less information on 
which to draw than for the other phases of the study. Helpful 
material will be found in related topics, such as 2, 7, 14, 58, 64. 

Reference. Duerr, William A., et al: Farms and forests of 
eastern Kentucky in relation to population and income; Ky. 
Agr. Exp. Sta. Bui. 507; 56 pp.; Lexington, 1947. 

PLANNING AND EVALUATION OF FORESTRY 
PROGRAMS AND POLICIES 

Topics of three sorts are included in this section: first, the 
delineation of problems as the basis for research or other action 
programs; second, the evaluation of alternative programs 
and measures; and third, the appraisal of particular programs or 
measures. In all cases the underlying research method is that of 



FOREST ECONOMY AT LARGE 79 

cost and benefit analysis as set forth in topic 14. This, therefore, 
is the key topic in the group. 

The point of view throughout the section is that of the com- 
munity at large or of groups within the community, and the 
criterion for evaluation is net real income to the community. 
Even though in some cases the research is focused on specific 
problems such as watershed improvement, forest fires, and tree 
disease, the context in all cases is the forest economy at large, 
and the studies are all of a sort contributing primarily to economic 
planning. These points are what distinguish the present topics 
from such others as 39 through 43 in Chapter IV and 57 and its 
subtopics in Chapter V, where the point of view is that of the 
individual firm, and the criterion for evaluation is net income to 
the firm. 

In this section, one question which will often arise concerns 
the point at which research ends and policy-making begins. For 
supplementary discussion of this question, reference is made to 
Chapter I. Another related problem centers about the evaluation 
of costs and benefits that are not quantifiable in the present state 
of technique. Because of this highly difficult and elusive problem, 
objective research can in some cases go only a small part of the 
way toward the final answer, and the remaining distance must be 
covered by judgment on a policy level. Further reference to this 
problem will be found in topics 77, 28, 4/, and 49a. A third 
important question that arises frequently in this section, as it 
does throughout much of forest economics, is the evaluation of 
the costs and benefits of the far future. This question, too, calls 
for the exercise of much judgment, and inevitably limits the 
decisiveness of research results. A further task beyond deter- 
mining the interest rate (2/) is that of forecasting values, though 
it must be remembered that because of the factor of interest, as 
the farther future becomes more difficult to foresee, it also be- 
comes less important in terms of present values. 

12. AREA PROBLEM ANALYSIS IN FORESTRY—William A. Duerr 

Purpose. To identify and attach weights to the economic prob- 
lems of forestry in an area, as a guide to a program of research or 
other action. 

Definitions. An area, as here considered, may range from a neigh- 
borhood to a nation or beyond. For most effective analysis, the 
area should be reasonably uniform in its economy. Where it is 



80 RESEARCH IN THE ECONOMICS OF FORESTRY 

not, delineation of relatively uniform subdivisions as analysis 
units is usually desirable (/). 

A problem, for present purposes, is a condition the continu- 
ation of which will result in loss of national net real income as 
compared with an alternative condition, consistent with national 
ideals, under which net income would be maximized. The amount 
of this loss measures the magnitude of the problem and is com- 
puted after the two indefinite time series of net income — (a) under 
a continuation of the existing condition; (b) under the alterna- 
tive condition — have been estimated and then discounted to the 
same point of time at an appropriate rate. By net income is 
meant real income, both individual and social, from which the 
real cost of attaining it has been deducted. Under this definition, 
a trend that will create a problem is itself a problem. 

To analyze a problem means to recognize it, state and explain 
it in terms of the conditions associated with it — which is not only 
to identify its " cause," but also to imply its "cure" — and measure 
its magnitude in relation to other problems. 

Scope and relation to the field. Area problem analysis may be 
employed as a first step in the process of formulating new pro- 
grams of research or other action, or of evaluating going programs. 
It is the technical part of this process. The remainder falls pri- 
marily in the field of policy formation. The various steps in 
program formulation are somewhat as follows : 

1. Identification and ranking of problems: problem analysis. 

2. Appraisal of needed action. In this step, problems are broken 
down into actionable units and restated in terms of the types of 
action needed: research, education, legislation, and so on. 

3. Review of past and current programs. For example, in the 
case of research, which of the needed lines have already been 
undertaken? What aspects have been studied? What, particularly, 
remains to be learned? 

4. Formulation of a program. Again taking research as an 
example, a list of projects and studies is now drawn up, arranged 
in order of priority. The order of arrangement is determined by 
the ranking of the basic problems, the subject matter of other 
research completed or in progress, and administrative consider- 
ations. Again, the list may be altered through recognition of the 
value of fundamental and theoretical studies, which tend to re- 
ceive low priority in problem analysis. 

Problem analysis, a rather barren undertaking in itself, becomes 
productive and meaningful when considered in relation to policy- 
making. 



FOREST ECONOMY AT LARGE 8 1 

The concept of problem analysis is fundamentally the same as 
that of evaluating forestry programs {14). Both projects are con- 
cerned directly with maximizing social plus individual net re- 
turns, and both employ as a criterion the comparison between the 
marginal cost and the marginal benefit of putting changes into 
effect. Program evaluation starts with given programs — means 
of effecting change — and their alternatives, and seeks to learn 
which is "best" from the standpoint of maximizing net returns. 
Problem analysis starts with given conditions that are subject 
to change in the interest of maximizing net returns and seeks to 
point the way to the best programs. The scope of programs im- 
plied in problem analysis is ordinarily broader than that con- 
sidered in program evaluation. 

Because of its very broad scope — covering the entire forest 
economy, and concerned also with the general economy of an 
area — problem analysis draws upon the data and assumptions 
and to some extent the methods of most of the research topics in 
this book. Its relation to such topics as 3, 4, <5, 7, 8, 11, 18, 25, 
ji, J5, 48, 54, 62, and go is particularly close. For ideas on types 
and sources of data, the student is referred to such other topics. 

Procedure. Conceptually, area problem analysis involves the 
following steps : 

1. Description of the area's forest economy. This is a detailed 
description of all current conditions, some of which may be sig- 
nificant problems and some not. It includes sufficient reference, 
also, to past conditions and current trends to permit a prediction 
of future conditions under the assumption of continuity of cur- 
rent policies and programs affecting the economy. The purpose 
of this step is to construct the indefinite time series of net real 
income referred to as "a" under Definitions, above. 

1. Description of an alternative forest economy that would be 
consistent with maximum national net real income and at the 
same time with national ideals. This is an exercise in model 
building (see, for example, 2). The goal of this step is income 
series "b," defined above. In computing income, allowance must 
be made for the costs of attaining the alternative economic or- 
ganization. Some concept of programs is therefore implicit at this 
point. 

3. Listing of those conditions in the area's current forest econ- 
omy that are significantly altered in the model, together with the 
amounts of increase in net income associated with the alterations. 
These are the problems and the measures of their magnitude. 

4. Arrangement of the list of problems in order of magnitude. 



82 RESEARCH IN THE ECONOMICS OF FORESTRY 

Each problem in the list — each current condition — is described in 
some detail. Also the corresponding condition in the model is 
described. Assumptions concerning any concurrent changes in other 
segments of the forest economy or in the general economy are 
also explained. Finally, the nature and magnitude of attendant 
changes in income are recorded. 

These concepts are of interest and importance in understanding 
the nature of problem analysis and in developing workable ways 
of doing it. Workable problem analysis will ordinarily depart 
from the conceptually pure approach in at least two important 
respects: (a) The hypothesis to be tested will be limited. Con- 
ceptually, the hypothesis is that every current condition is a 
problem. In practice, many current conditions will be passed by 
on judgment that they are not significant problems or because 
not enough is known about them to permit meaningful analysis, 
(b) Qualitative analysis will be substituted for quantitative an- 
alysis. Some or all of the calculation of incomes will be abandoned, 
model building will be done more or less generally or informally, 
and instead of these methods, judgment will be used. 

Under such a modified approach to problem analysis, the 
student will emphasize, first, learning as much as possible about 
the forest economy of the area in relation to the general economy, 
and second, recognizing major maladjustments in the forest econ- 
omy that appear to result in loss of real income. He will search 
the literature and assemble data from a wide variety of sources. 
Where information is lacking, he will make special studies, or, 
alternatively, note the deficiency as a part of his problem analysis. 
In the course of weeding out unpromising data, he will gradually 
assemble his hypotheses, and upon these he will then mainly 
concentrate, both in the library and in the field, where he will 
observe conditions at first hand and get the ideas of many in- 
formed persons. He will attempt to anticipate problems from 
observable present trends. His goal will be a list of problems, and 
for each problem the answers to two questions: Why is it a 
problem? Relatively, how large a problem is it? 

For details of procedure, the student may consult the references 
that follow. 

References, (i) Duerr, William A.: The economic problems of 
forestry in the Appalachian region; xi, 317 pp.; Cambridge, Mass., 
1949; especially pp. 10-28. (2) Schluter, W. C: How to do re- 
search work; vii, 137 pp.; New York, 1927; pp. 15-20. (3) Social 
Science Research Council: Research method and procedure in 



FOREST ECONOMY AT LARGE 83 

agricultural economics; 468 pp., processed; New York, 1928; pp. 
21-25. (4) U. S. Forest Service: Proceedings of range research 
seminar, held at Great Basin branch of the Intermountain Forest 
and Range Experiment Station, Ephraim, Utah, July 10-22, 1939; 
414 pp., processed; Ogden, 1939; pp. 31-42. 

The most thoroughgoing problem analyses of United States 
forestry are the Copeland Report (Senate Document 12, 1933) 
and the series of reports from the 1945 Reappraisal by the Forest 
Service, U. S. Department of Agriculture. 

12a. SURVEY AND EVALUATION OF FORESTRY RESEARCH PROGRAMS 

To determine what forestry research programs are under way 
or contemplated in an area, and to evaluate them in terms of 
coverage and pertinence with relation to forestry problems. 

The guides to evaluation are given in topic 12. For other 
material pertinent to the study, reference is made to Chapter 
VIII. 

13. EVALUATION OF PRIVATE FORESTRY PROGRAMS 

To weigh the costs and benefits of private forestry programs in 
an area with a view to determining optimum intensity and com- 
bination of programs. 

The private forestry programs in question here are not the 
programs of individual firms (as in 42), but privately sponsored 
programs for promoting forest management or other forest-eco- 
nomic activity in an entire area: protection programs of private 
associations, private programs for promoting tree planting by 
farmers, "Keep Green" and "Trees for Tomorrow" activities, and 
the like. The study is confined to programs the expected results 
of which are characterized by economic attributes. Although the 
criteria for evaluating such programs will in some cases be identical 
to those in topic 42 and in other cases identical to those in 14, 
there may be cases — and it is these to which the present study is 
directed — where the program must be evaluated in terms of an 
area of interest intermediate between the individual firm and the 
general public. The method of analysis is that given in topic 14. 

14. EVALUATION OF PUBLIC FORESTRY PROGRAMS— E. C. Weitzell 

Purpose. To weigh the costs and benefits of public forestry pro- 
grams in an area with a view to determining optimum intensity 
and combination of alternative measures and practices designed 
to conserve and develop forest resources; to determine and an- 



84 RESEARCH IN THE ECONOMICS OF FORESTRY 

alyze the public and private net benefits from forestry programs 
as a guide to allocating public expenditures for subsidy and non- 
subsidy effort. 

The aim will be to evaluate all the costs and all the benefits, 
to whomsoever they may accrue, that may arise from a specific 
public forestry program. The identification and measurement of 
both costs and benefits will be in monetary terms so far as possible, 
with particular attention to retaining cost incidence and bene- 
ficiary relationships — cause and effect — as a basis for allocating 
costs to different categories of beneficiaries. In addition, it will be 
essential sharply to analyze and compare on a qualitative basis 
gains and losses which cannot be reduced to monetary values. 

The viewpoint that will guide the evaluation is that of the 
public rather than of the individual entrepreneur or the indi- 
vidual citizen. 

Definitions. Economic evaluation is the systematic and objective 
comparison of all costs and benefits to determine the extent to 
which the costs of a given program will be justified by the benefits 
which maybe expected to accrue, under varying degrees of program 
intensity and from various combinations of measures and prac- 
tices. 

Costs and benefits are the negative and positive economic 
effects that are set in motion or realized as the result of a program. 
Costs include monetary expenditures, reductions in incomes, in- 
terest and risk discounts, time-preference differentials, intangible 
and aesthetic sacrifices, and other disadvantages that may be 
occasioned, either directly or indirectly, by the program. Bene- 
fits consist of increases in production and monetary incomes 
over the amounts that otherwise would have resulted, reduced 
costs, increases in futurity values, increased or maintained capital 
values, increases in individual and national security, enhanced 
aesthetic values, and other advantages that may result, directly 
or indirectly, from the program. 

Public forestry programs consist of a single measure or practice 
or a combination thereof, employed and administered by a public 
agency for the improvement, conservation, or fuller utilization of 
forest resources. 

Optimum intensity and combination of measures and practices 
refers to the degree to which alternative engineering, biological, 
and managerial techniques may be applied in order to produce the 
greatest total net benefits. 

The public viewpoint as a guide to evaluation consists, first, of 



FOREST ECONOMY AT LARGE 85 

the aggregate of all private effects — costs and benefits — and second, 
of the social gains and losses. The aggregate of all private effects 
includes direct and indirect costs and benefits that can be identi- 
fied and traced to any entrepreneurial activities or to any particu- 
lar persons. Benefits to one individual or firm may result in off- 
setting costs to another in the same or different location, and 
indirect or extended costs may exceed the direct benefits that 
are more readily apparent. Social gains are those that accrue 
generally to the people and that, because of their nature or of 
legislation, cannot be captured or realized by entrepreneurial 
effort, and those which occur so far in the future as to be beyond 
the vision of currently operating entrepreneurs or other individual 
interests. Likewise, social losses are those which are not borne by 
entrepreneurs, since they can escape them in the present and the 
future by failing and not being required to accept responsibility 
for them. 

Relation to the field. Economic evaluation is a fundamental 
part of program planning, and is the process for determining the 
economic feasibility of any particular program. It is the basic 
guide to all economic activity, whether it be a simple and re- 
stricted evaluation by a private entrepreneur operating in the 
" short" period, or the more complex evaluation of long-term 
public improvement and conservation investments. The fact that 
funds and materials required for the various public programs are 
scarce and have alternative uses makes it desirable to determine 
where and how they can be employed in the most productive 
manner. Consequently, the problem is to determine whether avail- 
able public funds may be expended most judiciously for fire- 
control programs, stand-improvement programs, insect and dis- 
ease control, recreational developments, reforestation, etc., or 
some combination of these, in order to achieve the greatest total 
net benefits. Moreover, a question which is basic is whether the 
benefits from any of these, singly or in combination, will justify 
the expenditures involved. 

Where public programs are administered on private lands, or 
where some of the benefits from programs administered on public 
lands accrue to private interests, it is desirable to determine the 
division of responsibility between social and private interests. In 
either case the generally accepted principle applies — that the 
recipients of benefits should pay the costs involved, if they are 
economically justified, in proportion to the benefits received — 
and it is only by evaluation that an adequate basis can be estab- 



86 RESEARCH IN THE ECONOMICS OF FORESTRY 

lished for determining the respective public and private respon- 
sibilities. Private interests, except in their general role as 
taxpayers, cannot be expected to bear the costs of practices and 
measures that produce only benefits of a social nature, although 
society may place limitations on the extent to which entrepreneurs 
may realize benefits at the expense of current or future social 
values of substantially greater magnitude. 

Procedural guides. The first step in economic evaluation is to 
identify, and trace from origin to incidence or beneficiary, all the 
costs and benefits associated with the project or program to be 
evaluated. Adequate attention to this initial part of the job is 
especially important in all instances where multiple purposes, 
social and private interests, and cost-benefit allocations are in- 
volved. After the effects have been identified and traced to their 
ultimate incidence or recipient, it is necessary to determine 
whether they will be given a monetary value as a basis for com- 
parison, or treated in a qualitative or descriptive manner. At this 
point the decision must be made concerning the extent to which 
objective economic analysis versus judgment comparisons will 
constitute the evaluation. It is desirable to extend the objective 
economic analyses, using money as the common denominator, as 
far as possible. 

Another paramount consideration is that of time. The factor 
of time has four important aspects: (a) Investments in public 
programs are for terminal or permanent improvements and must 
bear compound interest accordingly, (b) Benefits accruing at 
various times in the future must be discounted at an acceptable 
rate in order to reduce them to present values as a basis for com- 
parison with present investment costs, (c) Time involves risk, 
which must be considered as a cost chargeable against future 
benefits, (d) Values of a particular good vary according to both 
social and private time preferences — that is, the value of a specific 
commodity or service may be greater or less depending on the 
time of its development or use in relation to demand and sub- 
stitutibility. Thus, individuals may prefer to use up their timber 
resources rapidly, while the social viewpoint would foresee sub- 
stantial future needs for timber products to meet essential de- 
mands that could not be satisfied with any available substitute 
for wood. Conversely, if it were obvious that metals and other 
substitutes were going to be available during an indefinite future 
to meet all demands for a certain timber product, and at less 



FOREST ECONOMY AT LARGE 87 

cost, there would be little justification for investing in the con- 
servation of this timber product. 

The determination of satisfactory interest and discount rates 
is a prime problem of cost-benefit evaluation. There are at least 
three important guides that must be followed. First, public funds 
and all other resources are limited or scarce, and have value in 
both the present and the future. This gives rise to the need for 
judicious allocation among the alternative present and future 
uses. The rate of interest and discount must therefore be greater 
than zero. Otherwise there can be no limit to present spending in 
favor of future benefits, and no limit to the distance in the future 
that should be contemplated. Second, public funds can be made 
available at a certain rate of interest which usually may be con- 
sidered as the basic interest or discount rate. Third, varying 
degrees of risk are invariably involved in any type of investment. 
Adding an allowance for this risk to the basic rate is one approach 
to interest and discount determination. 

The final step in evaluating any program is to compare all the 
benefits and all the costs, both of which have been properly dis- 
counted to terms of present value or annual equivalents, and to 
determine whether the return amply justifies the costs. Whether 
the costs are justified will depend on the productivity of the funds 
if they were invested in an alternative program, or in the same 
type of program but at alternative rates of intensity. In lieu of 
making alternative evaluations, cost-benefit standards may be 
established on the basis of adequate experience. 

Whether a specific program is economically feasible — benefits 
justify the costs — depends on two questions: (a) Are the benefits 
greater than the costs, and (b) is the proposed intensity justi- 
fied? If the total benefits of a selected program are not greater 
than the costs at any degree of intensity, obviously the program is 
uneconomical. But if benefits do exceed costs, always subject to a 
diminishing return as the intensity of the program is increased, 
what degree of intensity will be justified? Here will be found valid 
the elementary principle that the intensity of any investment 
should be limited to the point at which the last unit added — 
marginal cost — produces an equivalent return — marginal return. 
This means that a justifiable ratio of benefits to costs will never 
be 1 to 1 for a diminishing-returns investment. The ratio will 
always be greater than unity, the extent depending on the " slope" 
of the diminishing-returns schedule for the particular investment. 



88 RESEARCH IN THE ECONOMICS OF FORESTRY 

Of course, the strictness with which precise analytical tech- 
niques such as the marginal economic analysis can be followed will 
vary, depending on the extent to which costs and returns can be 
reduced to a monetary basis. However, the analyst should not be 
led away from the fundamental techniques. Precise objectivity 
should characterize the evaluation as far as possible; then inter- 
pretations can be made in light of additional "qualitative" con- 
siderations. Although the researcher usually will not make the 
final decision as to whether a particular public investment will 
be made, it is his responsibility to provide the results of thorough 
analyses and recommendations upon which administrative policy 
and legislative action can be based. 

Where private entrepreneurial values or publicly administered 
enterprises are involved, the quantitative marginal approach is 
an essential feature of the analysis. On the other hand, it is just 
as important to recognize that certain social factors — national 
security, for example — which cannot be reduced to pecuniary 
terms may be of equal or greater significance than the quanti- 
fiable factors. Consequently the problem of weighting the mone- 
tary and nonmonetary values in making the final feasibility 
determinations is exceedingly important. The evidence in sub- 
stantiation of qualitative values must be subjected to the most 
careful scrutiny. And above all, it should be recognized that 
economic evaluation may be more misleading than helpful if all 
the costs are not weighed against all the benefits. 

References, (i) Clark, John M.: Economics of planning public 
works; Nat'l Planning Board, vi, 194 pp.; Washington, 1935. 
(2) Pigou, A. C: The economics of welfare; xxxi, 837 pp.; London, 
4th ed., 1938. (3) U. S. Nat'l Resources Planning Board: National 
resources development, report for 1942; v, 227 pp.; Washington, 
1942. (4) Grant, E. L.: Principles of engineering economy; xix, 
431 pp.; New York, rev. ed., 1938. (5) Gray, L. C: The economic 
possibilities of conservation; Quar. Jour. Economics 27, 3, pp. 
497—5 1 9 ; 1913. (6) Regan, M. M., and E. C. Weitzell: Economic 
evaluation of soil and water conservation measures and programs ; 
Jour. Farm Economics 29, 4, pp. 1275-1294; 1947. (7) U. S. 
Federal Inter-Agency River Basin Committee: Measurement as- 
pects of benefit-cost practices . . .; iii, 168 pp., processed; Wash- 
ington, 1948. (8) U. S. Federal Inter-Agency River Basin Com- 
mittee: Proposed practices for economic analysis of river basin 
projects; Subcommittee on benefits and costs; ix, 85 pp.; Wash- 
ington, 1950. (9) U. S, Federal Inter-Agency River Basin 



FOREST ECONOMY AT LARGE 89 

Committee: Qualitative aspects of benefit-cost practices . . .; iv, 
83 pp., processed; Washington, 1947. 

14a. EVALUATION OF WATERSHED IMPROVEMENT ON A FORESTED 
AREA — Martin Ma evers 

Purpose. To appraise the costs of alternative programs of public 
investment designed to improve a forested watershed; to evaluate 
the individual and social benefits accruing on account of such 
improvements through increased water yields, reduced floods and 
erosion, or other effects; and thus to determine levels of expendi- 
ture for watershed improvement which can be economically justi- 
fied on the area. 

Scope and relation to the field. The goal of the study is to direct 
watershed improvements on a forest in such a manner that the 
total watershed area contributes to maximum national income in 
the long run. When reductions in flood and erosion damage and 
improvements in the water economy are considered, in addition 
to costs and returns from forest products, extensive rather than 
intensive use of the watershed land may be needed to reach this 
goal. Thus, the net return from watershed use aimed at maximiz- 
ing national income may be well below the short-run income 
obtainable if flood damages or effects on the water economy are 
ignored. 

Watershed studies are likely to be needed wherever there are 
major obstacles to movement of capital into watershed-improve- 
ment measures — for example, where the amount of capital re- 
quired is larger than the quantity normally available to investors, 
where the returns from such investment are long deferred, or 
where only a portion of them accrues to the investor. The econ- 
omist's task is to test whether the share of the capital of society 
directed into watershed improvements by a proposed program is 
equivalent to the share that would go there if such obstacles to 
capital movement were nonexistent. 

In many problems of watershed evaluation both forest and 
nonforest lands are involved. In such cases, the evaluation of land- 
use alternatives (31) also becomes a part of the watershed an- 
alysis. However, in the present illustration it is assumed that the 
study area includes only forest land. 

Special problems of analysis. The evaluation of public water- 
shed-improvement programs involves both private and social costs 
and benefits. The more general analytical problems are discussed 
in topic 14. 



90 RESEARCH IN THE ECONOMICS OF FORESTRY 

The investigation begins by comparing the rate of return on the 
proposed watershed investments with the rate obtainable in the 
free market from alternative investments. Next, the effect of 
secondary benefits or costs upon the choice of investments is con- 
sidered. After that, the influence of nonmarketable values on the 
choice of investments is evaluated. In this watershed analysis, 
certain special problems are likely to arise. 

Any improvement of watershed land which has as its objective 
improvement of the water economy or reduction of flood and 
erosion damage must embrace the whole of a watershed to be 
effective. If the study area is thus to be an entire watershed, it 
will frequently include forest areas where nonwatershed values 
are high. Hence, the study may involve analysis of the effects of 
watershed improvements on timber or forage production, recre- 
ation values, and costs and returns of other forest uses. These 
multiple-use relationships are more fully discussed in topic ^7. 

The most important preliminary task is the assembly of ade- 
quate hydrologic data. These must show how much a change in 
land management or cover increases or decreases runoff, with 
given rainfall and watershed characteristics like soil, rock strata, 
slope, and exposure. The researcher has to separate, by statistical 
means, the causes of runoff and erosion so that those which are 
related to watershed improvement can be identified. 

A significant feature of some watershed developments is that 
they do not involve the creation of additional capital plant, with 
resulting additions to output which can be specifically identified. 
Benefits accruing from such investments in forest watershed im- 
provement may accrue simply through the prevention of flood 
and erosion losses that would have been suffered in the future had 
the watershed improvements not been made. Their productive 
function is somewhat akin to that of insurance. Two general 
types of watershed-improvement program may thus require evalu- 
ation. In the one, flood and sediment problems are of minor im- 
portance; the improvement program will aim at increasing the 
volume and usability of water yields; and the evaluation centers 
on measuring the net returns from such yields. In the other, 
flood and sediment problems predominate, and the program will 
be directed toward preservation of all types of capital resources 
in the area affected by the watershed. Here, if for example a 
water-supply reservoir is involved, the economist must balance 
the cost of watershed improvement for sediment control against 



FOREST ECONOMY AT LARGE 9 1 

the cost of developing a permanent substitute water supply for 
use when the reservoir has become useless because of sedimenta- 
tion. In some cases, where alternative resources cannot be de- 
veloped in the same area, the economist may have to answer 
the question, What does it cost to amortize the economy of the 
entire area dependent on the watershed? 

In any case, account must be taken of those forces that cancel 
out or strengthen the market effects of the project. These include 
items that are nonmarketable, are not exchangeable, or cannot be 
privately appropriated, such as effects on scenic beauty, recre- 
ation, public health, the state of security, education, and pollution 
of air and water. Methods of dealing with them are suggested in 
166b, 164c, 121, and related topics. 

References. The background literature includes (1) Pigou, A. 
C: The economics of welfare; xxxi, 837 pp.; London, 4th ed., 
1938. (2) Pigou, A. C: Socialism versus capitalism; vii, 138 pp.; 
London, 1937. (3) Kapp, K. William: The social costs of private 
enterprise; 283 pp.; Cambridge, Mass., 1950. (4) Foster, Edgar 
E.: Rainfall and runoff; xix, 487 pp.; New York, 1948. (5) U. S. 
Army, Corps of Engineers: Benefits from flood control; 169 pp.; 
Los Angeles, Cal., 1943. (6) Anderson, Henry W.: Flood fre- 
quencies and sedimentation from forest watersheds; American Geo- 
physical Union Transactions 30, 4, pp. 567-584; 1949. (7) U. S. 
Federal Inter-Agency River Basin Committee, Subcommittee on 
Benefits and Costs: Proposed practices for economic analysis of 
river basin projects; ix, 85 pp.; Washington, 1950. (8) Smithies, 
Arthur: Federal budgeting and fiscal policy; Ch. 5 from A survey 
of contemporary economics, Howard S. Ellis, ed., pp. 174-209; 
Philadelphia, 1948. 

15. EVALUATION OF FOREST-PROTECTION PROGRAMS 

To weigh the public and private costs and benefits of alter- 
native decisions with respect to forest protection in an area, so as 
to determine the best alternative. 

In this and the three following topics, attention is shifted from 
particular forest resources to a particular administrative activity 
— protection — that often impinges upon all resources. Highly com- 
plicated evaluation problems therefore arise, in which the ap- 
praisal of values difficult to measure is nearly always in the 
picture. Topic ^9 and its subtopics, dealing with forest valuation, 
provide background for the present series. 



92 RESEARCH IN THE ECONOMICS OF FORESTRY 

15a. EVALUATION OF PUBLIC INSECT- AND DISEASE-CONTROL PRO- 
GRAMS — S. Blair Hutchison 

Purpose. To provide information required to determine the 
desirable size of a public insect- or disease-control program. 

The forests of America are host to a number of insect and 
disease pests. Some of them cause a continuous but slow de- 
pletion of the timber resource. Reduction of this more or less 
normal drain is generally accepted as part of the regular timber- 
growing job. Other insect and disease pests periodically reach the 
epidemic stage and do major damage. Control of these epidemics 
is generally expensive, so the matter of justifiability becomes an 
important issue. Do the benefits to be gained warrant a control 
program, and if so, of what magnitude? 

Relation to field. Basically, the purpose of evaluating public 
projects is just the same as of evaluating private ones. In each 
case the objective is to determine the point where the marginal 
outlay will return marginal benefits of equal value {14). Where 
there are alternatives, it is necessary to determine also which is 
most economical. The difference between public and private eco- 
nomics lies in the fact that the benefits, and possibly also the costs, 
requiring consideration in public economics are complex and rami- 
fied, and many of them cannot be fitted into the dollar form of 
measurement with any degree of accuracy. 

For the individual private forest-land owner the matter of 
evaluating generally resolves itself to a comparison of the antici- 
pated costs and the anticipated value of the timber that a control 
program would save. To the public, timber value is not necessarily 
the most important consideration. The public must also take 
into account the effect of the threatened timber losses upon the 
economy of the locality and upon the timber-supply situation in 
general. In some instances the effects upon watersheds and recre- 
ation values are important considerations. 

Time also has a different place in the evaluation of public 
projects. Private owners generally deal with the time factor by 
heavily discounting benefits occurring many years away. In public 
projects, especially those in forestry, a lighter discounting of the 
future is most consistent with the long-time welfare of the nation. 

In its broadest sense, the purpose of public projects is to assure 
the continued security and prosperity of the nation and its parts. 
Because many of the factors involved in security and prosperity 
are neither measurable, at least as yet, nor easily determined, 
an analysis of public projects exclusively on a dollars-and-cents 



FOREST ECONOMY AT LARGE 93 

basis will weigh only part of the benefits. It may not include all 
the costs, either. The dollars-and-cents comparison, therefore, 
should be supplemented by a careful weighing of the nonmeasur- 
able benefits and costs. Because they are not measurable does not, 
of course, mean that they are unimportant. The most important 
benefits of public projects are in many instances those which it is 
most difficult to express in dollars. 

The purpose of broad evaluation of nonquantifiable as well as 
quantifiable benefits and costs is to provide a basis for deciding 
what relation the portion of the benefits that can be measured in 
dollars should have to the measurable costs for the project to be 
worth while. In some instances it may be reasonable to expect 
that the public investment should be repaid with interest by the 
timber saved. On the other hand, if failure to combat a particular 
epidemic would have dire results, the public might, with great 
justification, spend more for control than would be returned in 
the form of stumpage value. It is necessary to decide how im- 
portant the other benefits are, and then to interpret this im- 
portance in terms of a justifiable relationship between dollar 
costs and the direct dollar benefits. 

Each disease and insect problem is surrounded by its own par- 
ticular circumstances and must be judged accordingly. To avoid 
entanglement in the exceptions and variations that would apply 
with different problems, this statement is confined to outlining, 
by way of example, the approach followed in a study of the de- 
sirability of blister rust control on the national forests of the 
Inland Empire (Matthews and Hutchison, cited). 

Specific problem. Blister rust is a disease attacking white pine, 
and only white pine, in the Inland Empire. In a matter of a very 
few years blister rust uncontrolled can destroy virtually all the 
white pine in a young stand. Older trees are more resistant, but 
over a period of years even mature stands can be seriously dam- 
aged by the deforming and killing of trees. Control of the disease 
is achieved by eradicating wild currant and gooseberry bushes, 
or ribes, which are the alternate hosts to the disease. Unfor- 
tunately, ribes eradication has proved to be a fairly expensive 
job. The questions to which the administrators have sought an- 
swers are: (a) Do the values justify the high control costs? (b) 
If so, how large a blister rust control program should be under- 
taken on the national forests in the future? Size of program is 
mainly a matter of total acreage covered; a given acre must 
either be protected " fully" or not at all. (c) If protection is not 



94 RESEARCH IN THE ECONOMICS OF FORESTRY 

justified on all areas, what basis should be used for picking areas 
to be protected? 

Data and methods. There are five general considerations re- 
lated to the matter of how far to go with public control of blister 
rust on the national forests: national importance of white pine, 
regional importance of white pine, significance of national and 
regional importance to the dollar-cost/dollar-benefit ratio, prac- 
ticability of control, and relation of expected costs to expected 
value of the timber the project would save. 

i. National need for white pine. Studies of the timber supply- 
in the United States indicate that the nation faces increasing 
difficulty in years to come in obtaining wood in the quantity and 
of the quality needed. However, these national studies stop short 
of saying what the anticipated wood requirements mean in terms 
of growth objectives for the various species of timber. One issue 
which needs to be resolved, therefore, is the importance of Inland 
Empire white pine to the nation as a whole. No amount of study 
will give a precise quantitative answer to this question. However, 
it is possible to arrive at some opinion of the urgency of growing 
white pine in the Inland Empire. If white pine timber is very 
important to the welfare of the nation, the public will be satisfied 
with less of a dollar return on the investment than if the Inland 
Empire's white pine is a matter of no consequence to the nation. 
Thus, the determination of national importance of white pine pro- 
vides part of the setting for comparing the measurable costs and 
returns. An analysis of the national importance of white pine 
should cover the following subjects: 

a. Long-time trends in the species composition of lumber pro- 
duction. 

b. Trends in the wood-consuming pattern of manufacturing 
industries, with particular reference to white pine. 

c. The extent to which the requirements now met by white 
pine could be satisfied by other species or lumber substitutes. 

d. The relation of the soft pine timber-growing capacity in the 
United States to the probable future requirement for soft pine 
wood. 

e. The possibility of producing in other regions at lower cost 
the soft pine lumber that the nation will require. 

2. Regional importance of white pine. White pine is just one 
species in a mixed forest. The choice is not, therefore, between 
white pine and nothing, but between white pine and the species 
which might replace it. Will the loss of white pine from the stand 



FOREST ECONOMY AT LARGE 95 

materially affect growth capacity or otherwise upset the forest? 
White pine has been the mainstay of the lumber industry in the 
past. What does it mean to the future of the lumber industry? 
The answers to these two questions measure the importance of 
white pine to the regional economy and likewise provide further 
setting for comparing quantifiable returns and costs. The analysis 
breaks down into the following subi terns: 

a. The effect of partial or total loss of white pine upon the 
adequacy of the forests for watershed protection and recreation. 

b. The effect of partial or total loss of white pine upon the 
growth and yield of the forest, immediate and long range. 

c. Relation of blister rust control to other protection. 

d. Possibility of replacing white pine with other species of 
similar qualities. 

e. Past importance of white pine to the local economy — long- 
time trends in timber product cut in the region. 

f. Factors influencing the past marketability of the species 
associated with white pine, and the market outlook for these 
species. 

g. Past and probable future trends in the lumber values of 
white pine and associated species. 

h. Extent to which the region will be better off with white 
pine in the future than without it. 

Answering the questions raised by these points requires a care- 
ful search of the literature and consultation with experts. Re- 
gional lumber production, stumpage price, lumber selling price, 
and manufacturing cost data all contribute to the answers. So 
far as the local economy is concerned, the most important factor 
in the situation is the market outlook for the timber species as- 
sociated with white pine. Since these species compete with West 
Coast timber, comparative data on manufacturing costs, timber 
quality, and transportation costs are all significant. 

3. Significance of national and regional importance to the 
dollar-cost/dollar-benefit ratio. As already mentioned, the analysis 
of national and regional values is largely a qualitative weighing 
of the relation of this project to security and prosperity. The 
final answer may be no more precise than the general conclusion 
that the project is highly desirable — or unimportant — so far as 
the national and regional economies are concerned. General as 
such a conclusion is, it provides the only really adequate basis for 
deciding the minimum acceptable dollar return per dollar of cost. 
The next important step, therefore, is to determine what cost is 



96 RESEARCH IN THE ECONOMICS OF FORESTRY 

acceptable in light of national and regional values. Should the 
expenditure for controlling the disease and growing white pine be 
expected to earn i, 2, or 3 percent compound interest in terms of 
stumpage return; or is it desirable, if necessary, to spend more 
money to grow white pine than will be returned in stumpage 
value? 

4. Practicability of control. A review of pathological studies and 
other reports on blister rust control during the past quarter- 
century, and interviews with qualified observers are necessary to 
take full advantage of experience. Specifically, the following 
aspects of the situation require careful study: 

a. Effectiveness of control methods. 

b. Trends in techniques. 

c. Reasons for lack of satisfactory results in certain instances. 

d. The possibility for developing cheaper and more effective 
control programs. 

Some of these are technical rather than economic questions, 
but the economic analysis cannot be made until answers to such 
technical questions are available. 

5. Relation of expected dollar costs to expected dollar returns. 
The pattern of the dollar cost and return analysis is in a large 
part determined by the following physical factors : (a) Experience 
has shown on the one hand that blister rust cannot be completely 
eliminated from the Inland Empire, and on the other hand that 
complete elimination is not necessary. The 600-odd drainages in 
the white pine belt are more or less independent of each other — 
that is, each one can be protected without regard to what is done 
in the others. The individual drainage or modifications of it, 
therefore, becomes the logical unit for calculating costs and re- 
turns, (b) Halfway protection is not possible. A complete job of 
protection in a drainage has to be done or none at all. (c) Since 
blister rust control and white pine management cannot be di- 
vorced from each other, the costs to be considered should be all 
the extra costs over and above those required to grow other 
species. 

Broadly, the objective of the cost-benefit analysis is to calculate 
what expenditure would be required to protect and grow white 
pine, and to calculate the stumpage value which would result per 
dollar of cost. No simple analysis would show this, for the reason 
that there are many variables involved. There is a great difference 
between areas in land productivity, existing stands, and disease- 
control problems. Moreover, benefits per dollar of cost will vary 
greatly depending upon the intensity of forest management. It is 



FOREST ECONOMY AT LARGE 97 

necessary, therefore, to calculate the costs and benefits for each 
of a number of sample drainages under several different cir- 
cumstances. White pine yields, total costs, and costs per thousand 
board feet of white pine saved might well be calculated for each 
sample unit under assumptions such as the following: 

a. That blister rust control will be discontinued. 

b. That only existing stands will be protected. 

c. That blister rust control and white pine growing will be 
continued on a permanent basis, with owners of lands inter- 
mingled with national forest lands undertaking the management 
measures necessary to facilitate the blister rust control program. 

d. That blister rust control and white pine growing will be 
continued on a permanent basis, with only the national forests 
undertaking the management measures necessary to facilitate 
the blister rust control program. 

Such an analysis as this will require an estimation of future 
costs, white pine yields, and long-range stumpage-value trends. 

Development of policy and program recommendations. If the 
evidence indicates that white pine is nationally and regionally 
valuable enough to justify extra effort to grow it, and if the pro- 
spective costs on some or all of the area do not exceed the "rea- 
sonable" level as determined by the benefits, measurable and 
otherwise, it then remains to interpret the findings in terms of 
policies and programs. This, of course, raises the question as to 
where research ends and policy-making begins. Generally the 
researcher is considered to have fulfilled his responsibility when 
he provides the information required for policy and program de- 
cisions. There is no flat answer as to where that point is. In this 
instance the complexity of the problem makes it desirable for the 
researcher to tie the tangible and intangible considerations to- 
gether in the form of positive recommendations on policy and on 
criteria for laying out a program. The most important factors to 
be considered are: (a) The size of the whole program. Should an 
attempt be made to grow white pine on the entire area where that 
would be economical? Such items as the total labor requirement, 
the total cost of projects of various sizes, and the extent of the 
need for white pine are pertinent here, (b) The criteria for de- 
ciding which areas should be given priority. While the cost and 
value calculations for the individual drainages will have pro- 
vided a financial basis for determining priorities, other factors may 
have to be considered, such as the need for a sustained flow of 
timber and the dependence of communities. 

Reference. Matthews, Donald N., and S. Blair Hutchison; 



98 RESEARCH IN THE ECONOMICS OF FORESTRY 

Development of a blister rust control policy for the national 
forests in the Inland Empire; Northern Rocky Mountain For. 
and Range Exp. Sta. Paper 16; 116 pp., processed; Missoula, 
Mont., 1948. 

15b. OPTIMUM INTENSITY OF PROTECTION FROM FOREST FIRES— G. L. 
Hayes and T. F. Marburg 

Purpose. To determine for a specific forest area the optimum 
annual expenditures for fire control. 

Relation to the field. Fire control is the first step in American 
forest management and comprises one of its major items of cost. 
The economic goal of forest management is to produce maximum 
net returns. If this goal is to be realized, the optimum intensity 
of fire control must be practiced. 

Evidence provided by studies of this type is appropriate for the 
joint consideration of fire-control administrators and legislative 
bodies, or others who control finances, in arriving at the most 
advantageous allotments based upon the benefits forthcoming, 
money available now, and the desirability of investing money 
for future resource abundance. Such studies also provide guides 
for state foresters, federal regional foresters, etc., to use in dis- 
tributing appropriations most equitably between several protec- 
tion districts or national forests. And as the damages associated 
with the optimum intensity of fire control are closely related to 
the size of area that burns, the "allowable annual burn" for the 
area can be derived. This constitutes a readily understood ob- 
jective in fire control which has many administrative uses. 

Broader studies of the same area or comparable areas can pro- 
vide material and guidance in the conduct of this study, particu- 
larly in the determination of value of damageable assets. Workers 
making such studies will in turn draw on the findings of this one. 
Reference is made especially to topics 6, 8, 12, 14, 44, 49. 

The following three problems are related to the topic under 
discussion, but can be given only passing attention here: (a) 
What is the optimum distribution of fire-control expenditure be- 
tween prevention, presuppression, and suppression? (b) What is 
the optimum distribution of expenditures over time? (c) What 
is the most equitable distribution between the private owner and 
various public agencies of the total cost of protecting private 
lands? 

Definitions. Fire-control terms are used herein as defined in the 
U. S. Forest Service's Glossary of Terms Used in Forest Fire 
Control (cited). 



FOREST ECONOMY AT LARGE 99 

Principle and procedure in brief. The optimum intensity of fire 
control is taken to be that at which costs (for prevention plus 
presuppression plus suppression) plus damages are a minimum 
(Pv + Ps + S + D = minimum). At this level of intensity, 
marginal cost of fire control equals marginal revenue: the last 
dollar spent for control returns just a dollar of revenue in the 
form of damage reduction. 

In keeping with the above principle, the general procedure to 
follow for a specific study area is to (a) recognize and evaluate 
all fire-control costs and express them as annual sums, (b) recog- 
nize and evaluate all fire damages and express them as annual 
sums, (c) establish the cost-loss curve which fits the records, (d) 
add costs to losses for an adequate array to include that cost at 
which the sum of costs and losses is least. 

Special considerations. The following guides may help in the 
choice of a study area: (a) Accurate cost and loss data are essential 
if accurate results are to be obtained, (b) In general, the larger 
the study area and the longer the period of available records, the 
better will be the statistical base, (c) The task of data collection 
and processing is enlarged with the addition of each new political 
unit, or unit of land for which separate fire cost and damage 
records are kept, (d) Accurate costs may be difficult to extract 
from fund accounts, (e) If cost accounts are kept for a fiscal year 
which differs from the calendar year for which area burned and 
damage data are always kept, it will be necessary to ascertain 
whether the two can be placed on the same basis, (f) Best results 
are obtained if factors which exert a major influence on cost-loss 
relations are reasonably uniform over the study area. These in- 
clude the general character of forest types and fuels, fire risk 
(activity of fire-starting agents), topography, climate, effective- 
ness and efficiency of the fire-control organizations, general eco- 
nomic and social conditions, and values threatened. These are 
never completely uniform over an area large enough to comprise 
a study area, but accuracy and utility of results would certainly 
be lost if, for example, a study area should overlap two provinces 
in which different optima of protection are likely to be found, or 
one province where woods burning is an established custom and 
another where the people conscientiously practice fire prevention, 
(g) Cost and loss data should be available for a sufficient number 
of years to assure that the over-all averages will represent an 
average fire year. 

The rate of discount to employ in determining present worth of 
future values is a separate research problem (27). The lower the 



IOO RESEARCH IN THE ECONOMICS OF FORESTRY 

rate, the greater will be the protection expenditures that are 
economically justified. Guidance on the discount rate should be 
sought at the start of the study. 

Gathering and treating cost records. The objective of this 
phase of the study is a complete set of costs for each year of the 
study period and an average for all years, all of which are ad- 
justed and presented in terms of a common price level. 

Costs should be separated into various categories to facilitate 
calculation and adjustment of each year's expenditures to a com- 
mon base value. No set pattern for cost breakdown is possible, 
as so much depends upon the character of records obtainable 
(Craig et al, three references cited). In general, however, " vari- 
able" costs should be kept separate from " fixed" costs, since only 
the former influence the shape of the cost-loss curve. The latter 
need not be considered at all unless total-cost data are needed, in 
which case the fixed costs can be added to the variable costs after 
the point of least cost-plus-loss has been found. 

Suppression expenditures should be kept separate from pre- 
vention and presuppression expenditures and treated as damages 
whenever possible. This procedure is often necessary because: 
(a) In a reasonably well-financed organization, S costs are in- 
fluenced by Pv and Ps costs in the same way as damages are. A 
fire prevented costs nothing for suppression and causes no dam- 
age. Likewise, a fire that is controlled while small because of ad- 
vance preparation (presuppression) costs but little to suppress 
and causes little damage, but a fire that grows large because of 
inadequate presuppression is both expensive and damaging, (b) 
S costs and damages therefore tend to be high when burned area 
is large, and small when burned area is small, (c) If S costs, with 
which damages are positively correlated, are combined with Pv 
and Ps costs, with which damages are negatively correlated, 
there may be no correlation of damages with the combined costs. 

In some accounting methods, it is impossible to separate S 
costs from Pv and Ps costs. It may be possible to get satisfactory 
results by leaving the three combined, provided suppression funds 
were so inadequate during the study period that either part of the 
fires received no suppression effort, or all fires received inadequate 
suppression effort. Under such conditions increases or decreases 
from year to year in suppression expenditures are likely to be re- 
flected in decreases and increases, respectively, in area burned 
and damages. But if funds were adequate to take suppression 
action on every fire commensurate with the size of job represented, 



FOREST ECONOMY AT LARGE IOI 

then it will probably be impossible to derive a cost-loss curve for 
the period unless S costs can be separated from Pv and Ps costs. 

Cost records are most conveniently obtained from the agencies 
that spend the money. For the national forests, all money comes 
from federal funds and is spent by the national forest administra- 
tion. But for the protection of private lands the money may 
derive from federal, state, county, and private sources. The bulk 
of it in most states, however, is spent by the state or county or- 
ganization charged with fire control. All agencies, public and 
private, that may spend money or contribute time toward any 
phase of fire control should be canvassed in order to get complete 
cost data. 

Gathering and treating damage records. The objective of this 
phase of the study is aggregation of damages in the protected 
area for each year of the study period and computation of an 
average for all the years covered, all of which are expressed as 
dollar losses, converted to base-year values. 

The appraisal of damages is the most difficult part of the study. 
It involves (a) recognition of the values present, (b) determining 
the extent to which they are damageable by fire, (c) determining 
the degree to which such damages are measurable, and (d) ap- 
plying valid means of measurement. The difficulty is in part due 
to the large variety of resources and other values that are damage- 
able by fire and which require separate appraisal by a variety of 
procedures. Little is known about some of these resources and 
the extent to which they are damageable. 

In a large study unit it is impractical to attempt a separate 
appraisal for every acre or tract that burned. The simplest ap- 
proach is to determine by a sound sampling procedure the aver- 
age damage per acre burned and multiply by the total acres that 
burned to get total annual damage. The acreage that burned 
annually can be obtained from the individual fire reports or 
summaries prepared by the state or federal forest service. 

More accurate appraisal is often possible if the area burned can 
be subdivided according to several factors which influence the 
degree of damage. The procedure followed then can be illustrated 
by reference to the subdivision of timber losses according to those 
on merchantable timber, young growth, and reproduction stands 
of each of the major forest types. The most desirable basic data 
are actual sample-plot findings for each such class with respect to 
mortality, cull, delayed growth or re-stocking, etc., associated 
with burning. Data of this sort for forest types of the southern 



102 RESEARCH IN THE ECONOMICS OF FORESTRY 

Appalachian region are available at the Southeastern Forest Ex- 
periment Station and provided the basis for references Nos. i, 
3, and 4, cited. The physical volume of timber damage per acre 
computed from such basic data for each class of land is then 
multiplied by the acreage of each such class in the study area 
that is burned. 

Among the potentially damageable resources and values that 
should be considered are merchantable timber, young growth, 
and reproduction; water values; wildlife; recreation; forage; prop- 
erty such as structures of all kinds, agricultural products, logging 
and other equipment, cut logs, etc; and values such as com- 
munication and transportation services that may be disrupted, 
and human life that may be lost. 

In addition, the effects of fires upon subsequent fire damages or 
control costs should be evaluated. Two such effects deserve men- 
tion: (a) change in costs of fire control and magnitude of fire 
losses caused by creating or eliminating dangerous fuel types; 
(b) change caused by a conflagration and the possibility of its 
recurrence (conflagration potential): many socio-economic dam- 
ages assume significance only following large, catastrophic fires. 
In areas subject to periodic recurrence of conditions under which 
known control measures are ineffective against fires gaining a 
good start, greater control expenditures than otherwise are war- 
ranted. 

All the above values and fire effects need not be appraised for 
all areas. Which to include depends upon their significance in the 
area and who will use the results. A private forest owner planning 
a fire-control program will usually not consider recreational and 
wildlife values, downstream water values, the public tax base, 
etc., whereas a public agency must consider all these values. 

For a more detailed breakdown of damageable resources and 
values, the references cited may be consulted, especially Nos. 
3, 4, and 5. Other sources of damage information include the 
federal forest experiment stations, publications of the nation- 
wide Forest Survey, specialists on each of the damageable re- 
sources, public agencies concerned with the various resources, 
professional and technical journals pertaining to the resources, 
National Resources Planning Board reports, and fire reports of 
the U. S. Forest Service and state forest services. 

To facilitate calculations, damage data can be advantageously 
separated into several categories. First, those damages which can 
be expressed monetarily should be separated from those which 



FOREST ECONOMY AT LARGE 1 03 

cannot. Only monetary expressions of damage can be used to 
arrive at the point of least cost-plus-loss, but greater expenditures 
may be indicated if nonmonetary losses are material. 

It is likewise desirable to express all monetary losses in terms 
of both physical units and money. For resources such as im- 
mature timber, the present market value is not easily determined 
and is not very meaningful as a basis for public policy on account 
of the high rate of discount used by private operators to arrive 
at present value of young growth. One procedure that can be 
followed is to compute future losses in board feet and discount at 
an appropriate interest rate to derive a present measure of the 
future loss. The anticipated dollar value (86) is then applied to 
this discounted future volume. 

Fitting the cost-loss curve to the data. Past efforts to fit a curve, 
either free-hand or arithmetically, to an array of annual costs and 
losses for any specific study area have proved fruitless because the 
net effect of cost on losses was obscured by other variables, and 
the range of costs was too small (see references Nos. 3 and 4). 
But by utilizing records from eight northeastern states for six 
years, and eliminating variations due to a number of other vari- 
ables, the general curve and its equation have been obtained 
(Hayes, cited). It is a hyperbolic curve of the general type y = 

7—7 — in which x = annual expenditures (Pv + Ps, and 

sometimes S), y = annual damages (S + D, or D only when S 
is included with Pv + Ps), and a and b are constants. It will 
express the decline in losses for effectively used increases in ex- 
penditures. 

It is doubtful if the paired annual costs and losses from any 
study area will be consistent enough to permit fitting the curve 
directly; too many variables other than expenditures influence 
damages. But an average of all the variable costs and the losses 
will comprise one point of maximum reliability on the curve. For 
the second point that is needed to determine the curve, good 
results have been obtained by setting x — o and obtaining the 
best available experienced estimate of y for an average year. 
From the resulting curve of loss over cost, the required curve of 
cost-plus-loss over cost is directly derived, and on this latter 
curve the point of least cost-plus-loss can then be found. 

The above procedure for obtaining the curve of loss over cost 
is recommended because it uses the value of y which is most 
reliably estimated, and because a substantial error in estimating 



104 RESEARCH IN THE ECONOMICS OF FORESTRY 

y when x = o will have little influence on that portion of the 
curve near the known value for x and y. If known variable ex- 
penditures {x) are approaching the optimum, the least cost-plus- 
loss point will be accurately identified. If known expenditures are 
grossly inadequate or excessive, the point will be less accurately 
identified, but precision will be less important, the fact of such 
inadequate or excessive expenditure clearly indicating the direc- 
tion of change in protection intensity called for. 

It should be recognized that the point of optimum control 
intensity thus determined is specifically applicable only to the 
average fire year. To keep expenditures in balance, fire-control 
administrators must spend less during the easy years and more 
during the difficult years. The utility of results can therefore be 
enhanced by computing separate optimum points for the easiest 
and most severe years of record as a guide to administrators in 
keeping each year's expenditures in proper balance. 

Many fire-control organizations now have, for all practical 
purposes, all the funds that are needed for suppression of all 
fires. Hence, what they need to know is how much to spend for 
Pv and Ps to keep the sum of Pv + Ps + S + D at a minimum. 
But if the S component of the S + D sum is desired separately 
for the point of least cost-plus-loss, it can be taken as the dif- 
ference between two cost-loss curves, one of which relates D 
alone to Pv + Ps, and the other of which relates S + D to Pv 
+ Ps. 

References, (i) Barrett, L. I., George M. Jemison, and John 
J. Keetch: A method for appraising forest fire damage in southern 
Applachian mountain types; Appalachian For. Exp. Sta. Tech. 
Note 44; 13 pp., multilithed; Asheville, N. C, 1941. (2) Beall, 
H. W. : An outline of forest fire protection standards; Forestry 
Chronicle 25, 2, pp. 82-106; 1949. (3) Craig, R. B., B. Frank, 
G. L. Hayes, and G. M. Jemison: Fire losses and justifiable 
protection costs in southern Piedmont of Virginia; Appalachian 
For. Exp. Sta.; 27 pp., mimeographed; Asheville, N. C, 1945. 
(4) Craig, R. B., and B. Frank: Fire losses and justifiable pro- 
tection costs in the southwestern coal section of Virginia; South- 
eastern For. Exp. Sta., 45 pp., mimeographed; Asheville, N. C, 
1947. (5) Craig, R. B., T. F. Marburg, and G. L. Hayes: Fire 
losses and justifiable protection costs in the coastal plain region 
of South Carolina; Southeastern For. Exp. Sta., 46 pp., mimeo- 
graphed; Asheville, N. C, 1947. (6) Flint, Howard R.: Adequate 
fire control; Jour. Forestry 26, 5, pp. 624-638; 1928. (7) Hayes, 



FOREST ECONOMY AT LARGE 105 

G. L.: Report on method of deriving a master curve of area 
burned in relation to cost of protection and adapting it to the 
southern Piedmont study area; Appalachian For. Exp. Sta., 19 
pp., typewritten; Asheville, N. C, 1944. (8) Leontief, Wassily: 
Output, employment, consumption, and investment; Quar. Jour. 
Economics 58, 2, pp. 290-314; 1944. (9) Lutz, F. A.: The criterion 
of maximum profits in the theory of investment; Quar. Jour. 
Economics 60, 1, pp. 56-77; 1945. (10) Mitchell, J. A.: Fire 
damage appraisal; Fire Control Notes 9, 2 and 3, pp. 27-30; 
1948. (11) Southern Forest Experiment Station: Preliminary 
tables for reporting damage from forest fires in southern region; 
14 pp., mimeographed; New Orleans, 1941. (12) Sparhawk, W. N.: 
The use of liability ratings in planning forest fire protection; 
Jour. Agricultural Research 30, 8, pp. 693-762; 1925. (13) U. S. 
Dept. Agriculture, Forest Service: Glossary of terms used in 
forest fire control; 24 pp.; Oakland, Cal., 1939. (14) Watrous, 
Roberta C: Economic aspects of forest-fire protection and dam- 
age, a list of references; U. S. Dept. Agr. Library List 34; 48 
pp., mimeographed; Washington, 1947. 

15c. OPTIMUM DISTRIBUTION OF FOREST-FIRE-CONTROL FUNDS— Richard 
H. Blythe, Jr. 

Purpose. To determine in what proportions a given sum of 
forest-fire control money should be distributed among adminis- 
trative units — such as working circles, counties, or states — so as 
to minimize the total loss from fire. 

The object of appropriating money for forest-fire control is to 
reduce the losses from fires in the woods. The concept of reduc- 
ing losses calls for some way of measuring loss. The most useful, 
although most difficult, expression of fire loss is the dollar value 
of all the things destroyed or injured by fire. The value of mer- 
chantable timber might be the most important single item; water- 
shed protection, immature timber and reproduction, soil char- 
acteristics both chemical and physical, and recreational values 
are but a partial list of some of the items affected by fire. The 
damage to all these items must be converted to a common 
measure: dollars. 

Relation to the field. The present study illustrates a common 
problem in forest economics: the problem of apportioning ex- 
penditures in such a way that the total net result of the spending 
is minimized or maximized. Examples are the apportioning of 
all kinds of control expenditures to various functions so that 



106 RESEARCH IN THE ECONOMICS OF FORESTRY 

losses will be minimized, and the distribution of effort to various 
lines of production so that returns will be maximized. Funda- 
mentally, the problem is that of equating marginal returns per 
dollar of cost. The present study is an instance of how this 
problem may be solved by a mathematical approach. 

In dealing with the particular problem of optimum allocation 
of fire-control funds among administrative units, a theoretically 
ideal solution will be developed first, then a practical approxima- 
tion will be considered. 

The ideal method. The first step toward the ideal solution is to 
learn how fire losses are related to expenditures for fire control 
(15b). What is required is a curve or equation relating fire losses 
to protection expenditures for each administrative unit, with the 
simplifying assumption that all factors other than expenditures 
are held constant. Within any single administrative unit, the fire 
loss which would be experienced during a particular year may be 
expected to be inversely related to fire-control expenditures — 
that is, the more money spent for protection during the year, 
the smaller the losses. It should be noted that this relation applies 
strictly to a single administrative unit in a given year. Probably 
the greatest reduction in the losses per dollar of fire-control cost 
would result from the first elements of a fire-control program. 
As the losses are reduced by intensifying the protection, further 
reduction in damage becomes more and more costly, it being 
virtually impossible to eliminate every dollar's worth of damage. 
Thus the curve represents diminishing returns in the form of 
damage reduction per dollar of protection expenditure. 

The equation suggested in topic 15b is one of many which 
have this general characteristic of diminishing returns. Unfortu- 
nately, this equation presents some mathematical difficulties to 
the solution of the allocation problem described here. Therefore, 
for purposes of illustration, a somewhat simpler type of relation 
will be used. 

The following equation can be assumed to represent the loss- 
cost relation for a particular administrative unit, say the I th 
unit: 

Li = — ^ (First formula) 

Ci 

where Li = fire loss in i th administrative unit; 

d = total expenditure for fire control in z th unit; and 
ai = a constant. 



FOREST ECONOMY AT LARGE 107 

It may also be assumed for purposes of illustration that each 
of the administrative units has a curve of the same type, differing 
only in the value of the constant "a." 

The total loss (L) over all the administrative units is of course 
merely the sum of the losses of the individual units; thus 

L = y^Lj = 2 "~1 (Second formula) 

The total expenditure for protection (C) is equal to the sum of 
the expenditures in the several units. 

C = 2 Ci (Third formula) 

Once the relationship between losses and expenditures has been 
developed for each administrative unit, it is possible to solve 
the problem of allocating the total appropriation among the 
units. Previously the objective of the allocation was determined 
to be the maximum reduction in total fire loss. Expressed in 
mathematical language, the purpose is to find the values of d 
which minimize the total loss (L) subject to the condition that 
the total expenditures (C) shall be equal to a fixed appropriation. 

This problem can be solved by recourse to the methods of 
differential calculus. For the loss-cost function used as an illus- 
tration above (first formula), the result is as follows: 

3/ 

Ci = ^ 3 * C (Fourth formula) 

If the amount of money allocated to each unit (d to the i th 
unit) is calculated from the fourth formula by substituting the 
appropriate values, then the total fire loss (Z.) over all units will 
be the least possible for the fixed total appropriation (C). 

Briefly and in completely general terms this method can be 
summarized as follows: Develop a separate loss-expenditure func- 
tion for each administrative unit; add the separate functions 
together to get the total loss over all units as a function of the 
expenditures in the individual units; by differential calculus mini- 
mize the total loss subject to the condition that the sum of the 
expenditures in the separate units shall equal the given total 
appropriation. 

The practical approximation. Under actual conditions some 
modifications of the simple objective of minimizing total losses 
may be required in order to meet special restrictions. For example, 
it is conceivable that allocation in accordance with the scheme 



108 RESEARCH IN THE ECONOMICS OF FORESTRY 

proposed above would result in such a small allotment to some 
one unit as to make any program at all impossible; yet there may 
be legislative or other obligations which require some program in 
every unit. 

In order to meet such conditions it is usually possible to include 
the necessary restrictions in the statement of the objective and 
still solve the problem by strict mathematical procedures. Actual 
conditions do not necessarily preclude a precise statement of the 
objective and a formal solution of the problem. 

The point at which application of the theoretical solution to 
real problems becomes difficult and at which approximations 
become necessary is in developing the loss-expenditure curve for 
each administrative unit. In the first place, the assessment of 
damage to many elements such as soil fertility, recreational values, 
and watershed protection is very difficult. Secondly, the only 
data which might be used for developing such a curve are annual 
estimates of loss and cost. Obviously the differences in weather 
and other factors from year to year will tend to upset the relation 
between loss and cost; also, technological advances in protection 
methods will tend to reduce losses corresponding to a given cost 
and set of weather conditions. It will not pay to attempt great 
refinement in developing cost-loss curves. 

Thus it will generally not be possible to have cost-loss curves 
with a high degree of accuracy. This lessens but certainly does 
not eliminate the value of the concepts which form the basis for 
the present study and for topic i$b. The appropriation and al- 
location of funds for fire control can never be done with exact 
precision; but an understanding of the proper concepts and even 
an approximate application of them will insure a better alloca- 
tion than can be achieved by formulas arrived at arbitrarily. 

16. BASIS AND EFFECTS OF PUBLIC REGULATION OF PRIVATE FOREST 
MANAGEMENT 

To evaluate the economic aspects of the public regulation of 
private forest management and utilization in an area as a tool 
of public policy. 

This study may be thought of as consisting of two phases. 
The first is an appraisal of the costs and benefits of some particular 
form of forest management and utilization such as might be the 
ultimate goal of regulatory or other efforts. Attention is directed 
to income to forest owners, operators, and other agencies in the 
forest economy; to timber capital and output in relation to what 



FOREST ECONOMY AT LARGE 1 09 

the economy can efficiently support; and to the net benefits from 
the nontimber products and services of the forest. The analysis 
is akin to that in topic //, on the potentialities of the forest economy. 
The second phase of the study is an appraisal of the costs and 
benefits of specific programs, measures, and forms of public regula- 
tion. Here attention turns to the weighing of various alternatives 
such as control by the different levels of government, control over 
different steps in the forest-economic process, alternative forms 
of regulatory legislation, and regulation as compared with alter- 
native public approaches to improving forest management and 
utilization. In each case account is taken of probable departures 
from the goal examined in phase one. The analysis is akin to that 
in topic 14, on evaluation of public programs. 

16a. INFLUENCE OF RURAL-LAND ZONING ON THE FOREST ECONOMY— 
Erling D. Solberg 

Purpose. To analyze the role and use of zoning in a forested 
area as it may affect forest-land use, forest tenure, forest manage- 
ment, and returns from the forest economy, and to describe the 
interrelationship of forest zoning and other private and public 
programs and policies. 

Definitions. Zoning has been defined as the regulation by dis- 
tricts, under the police power, of the height, bulk, and use of 
buildings, the use of land, and the density of population. Rural- 
land zoning is the regulation by districts of the use of land for 
forestry, farming, grazing, soil and water conservation, and similar 
purposes. In a forestry district or zone, forestry is permitted and 
all other uses are generally prohibited, except that existing non- 
conforming uses and some recreational and other incidental uses 
may be permitted. 

Relation to the field. Rural-land zoning serves to keep individ- 
ual initiative in the use of land in predetermined channels. It is a 
useful police-power device for stabilizing land use, particularly 
in an area of small private ownership. In areas consisting pri- 
marily of large public or private forest holdings, zoning serves 
to supplement proprietary controls. 

If wisely administered, rural-land zoning may materially reduce 
local governmental costs. Isolated settlement may be restricted 
in forestry zones, thereby decreasing the need for local roads, 
snow plowing, school transportation, and other public services. 
This, in turn, eases the tax burden on forest lands. Moreover, 
rural-land zoning may have an influence on population distribu- 



HO RESEARCH IN THE ECONOMICS OF FORESTRY 

tion, employment (<?), land tenure (jj) and land use (joa), land- 
and forest-management practices {48), and the time of accrual 
and stability of income (8). Zoning may prevent uneconomic 
development, particularly farming of marginal lands, and may 
be a contributing cause of other social and economic changes in 
the rural economy. 

Other factors have a direct bearing on the role of zoning in 
stabilizing forest-land use, tenure, and management, and on re- 
turns from the forest economy. Among the factors having an 
impact are forest assessment and tax policies (46) ; policies govern- 
ing retention or disposal of tax-reverted lands ; local policies toward 
schools, roads, and other public services; programs for relocation 
of scattered settlers; and public or private programs for acquisi- 
tion of land for forest uses. 

Moreover, zoning is but one of several aspects of police power 
that may be used in exercising a degree of public control over 
private forest land. Another aspect, closely related, is public 
regulation of forest management (16), including harvesting or 
cutting, fire control, and grazing. 

Characteristics of these aspects of police regulation differ 
greatly. Under zoning regulations, certain uses are permitted and 
all others are prohibited. A zoning ordinance seldom calls for 
affirmative action on the part of the citizen affected. Similarly, a 
decision of a planning authority not to provide certain public 
services in a forest area indirectly negates nonforest uses such as 
farming and year-round residence. Regulations relating to har- 
vesting, grazing, and fire prevention also are characterized by 
prohibitions, but these regulations frequently call for the per- 
formance of affirmative acts entailing monetary outlays by forest 
owners and operators, which is not often the case under zoning 
regulations. Moreover, adequate enforcement of forest-manage- 
ment regulations requires more detailed supervision on the part 
of enforcing officials than does the enforcement of zoning ordi- 
nances. 

Selection of the study area. These are some of the types of 
zoned areas suggested for study: (a) A city watershed. In such 
an area the primary purpose of zoning may be to supplement 
city health and trespass regulations, (b) An area predominantly 
in public or industrial forest ownership. Here zoning may be a 
useful device for maintaining the prevailing dominant land use 
by preventing the occurrence of the occasional ~° ut disturbing 
nonforest use. (c) An area of uneconomic land use, scattered 



FOREST ECONOMY AT LARGE 1 1 1 

settlement, farm poverty, and high local government costs, but 
not containing large industrial or public forest units, (d) An 
area primarily devoted to forestry but containing intermingled 
agricultural and other uses. The area may contain large public 
or private holdings but should also embrace a considerable scatter- 
ing of medium-size and small forest holdings. Soils should be of a 
quality normally marginal for farming but not too poor to bar 
possible shifts to farming during favorable rainfall or economic 
cycles. 

Rural-land zoning in the United States has only a short history. 
It had its beginning in the cutover areas of northern Wisconsin 
in the early 1930's. In the latter part of the same decade, forest 
zones were established under a few county ordinances in Michigan 
and Washington, and in the early 1940's in Colorado, Minnesota, 
and Utah. Study areas having as long as possible a zoning history 
are desirable. 

Together with the zoned area chosen for study, a reasonably 
similar unzoned area should be selected for control purposes. 

Data required. This survey will involve a preliminary compila- 
tion and analysis of (a) the rural-zoning enabling laws and related 
court decisions and opinions of the state attorney general, and 
(b) a similar treatment of county or township rural-zoning ordi- 
nances in force in the study area. 

Additional data needed will vary depending on the type of 
area selected for study, but will include, as a minimum, current 
and pre-zoning maps of land use and ownership for the sample 
and control areas, and the original and current zoning maps. 
Some of these maps are no doubt available; others will have to be 
compiled from aerial photographs and records in county offices 
or in federal or state offices. Also needed are original and present 
lists of nonconforming land uses, and records of variances and 
exceptions granted, amendments enacted permitting change in 
land use, and violations and enforcement actions. Sampling 
procedures may have to be used to determine the extent of 
unreported violations involving changes in land use. 

An analysis of zoning influence in some of the suggested types 
of sample areas may call for added information. Data on forest- 
management costs, for both a current period and a period preced- 
ing zoning, may be needed for the sample and control areas. 
Data may also be required on other programs and policies having 
a bearing on forest tenure and land use, such as local forest- 
taxation and tax-reverted-land policies, public or private land- 



112 RESEARCH IN THE ECONOMICS OF FORESTRY 

purchase programs, and local policies relating to maintenance of 
schools, roads, and other public services in sparsely settled areas. 

If the study includes analysis of the impacts of zoning on 
population distribution, employment, income, forest-management 
practices, and other social and economic changes in the rural 
economy, data pertaining to these factors also will be needed. 

Analysis. Differences between the pre-zoning ownership and 
land-use maps and the respective current maps in the zoned and 
unzoned study areas will reveal changes occurring during the 
zoning period. Similarly, a comparison of the original and the 
current zoning maps on which are superimposed the original and 
present nonconforming land uses, variances, exceptions, amend- 
ments, and unreported violations involving changes in land use 
will disclose progress or regression in stabilizing land use. 

Having established the changes in ownership, land use, and 
zoning status occurring during the zoning period, the next prob- 
lem is to determine the factors actuating these changes and to 
isolate the impacts of zoning (joa, jj). 

In some of the suggested types of sample areas, forest zoning 
may have been initiated as part of an integrated program which 
may have included a basic change in forest taxation, public 
purchase of marginal land and of isolated homesteads, land ex- 
changes, and a more realistic handling of tax-reverted lands. 
Rapid enlargement of private forest holdings also may have oc- 
curred at this time. If such an integrated forest program had 
been initiated, difficulties in isolating the zoning influence on 
forest tenure and land use would be materially increased. Assum- 
ing that such an integrated program was started, analyses may be 
facilitated by dividing the zoning period into two parts or stages, 
the first a period of adjustment and consolidation, and the second 
a period of relative stability and of maintaining the status quo. 
During the first stage, considerable resistance to zoning — ex- 
pressed in numerous requests or grants of variances, exceptions, 
or amendments of boundaries, and in reported and unreported 
violations — may have occurred. In the second stage, resistance to 
zoning may have eased considerably because regulations of land 
use by police-power sanction are supplemented by better pro- 
prietary controls stemming partly from the changes in land use 
occurring in the preceding period. A gradual elimination of re- 
maining nonconforming uses may continue during this stage, but 
the primary function of zoning at this stage is to preserve the 
gains previously attained. 



FOREST ECONOMY AT LARGE 113 

To determine the influence, if any, of zoning on forest manage- 
ment, including the incidence of forest fire, a comparison of forest 
management is necessary in the unzoned and zoned study areas 
in the pre -zoning and zoning periods. Differences, if any, in 
forest management should be noted and evaluated. Similar com- 
parisons could be made to test the effects of zoning on population 
distribution, employment, income, and other observed changes 
in the rural economy. However, as the number of causal factors — 
zoning and others — actuating change increases, and the number 
of changes in the forest economy resulting from these factors 
increases, the difficulty of isolating the effects of zoning is multi- 
plied. 

SOCIOLOGY OF FORESTRY 

Harold F. Kaufman 

Not a part of the economics of forestry, but a distinct field in 
its own right, the sociology of forestry is nevertheless so inti- 
mately related to the economics of forestry that some mention 
of it at this point is appropriate. A few administrative surveys 
have been conducted in this field, but not enough work has been 
done for sociological contributions to forestry to be a separately 
recognized field. Historically, sociology in academic and other 
programs has frequently been inaugurated as a phase of eco- 
nomics, at least administratively. The purpose here will be (a) 
to define the field especially as it relates to forest economics, (b) 
to illustrate some of the problems and approaches of the sociology 
of forestry, and (c) to present an example of a research topic in 
this field. 

Academic disciplines are more effectively differentiated by their 
systems of concepts than by the world of experience on which 
they focus attention. The economist looking at the life and work 
of people in the forest employs market value and price as central 
concepts. The sociologist focuses on the terms group and per- 
sonality and on the processes by which social order is developed 
and maintained. Such related concepts as social attitudes and 
values, culture, social organization, and social control are also 
employed. 

To administrative and action programs, sociological analysis 
may be of assistance in the evaluation of goals and objectives 
and of the organization by which these goals may be realized 



1 1 4 RESEARCH IN THE ECONOMICS OF FORESTRY 

(l2-i6a). Sociology makes explicit the values other than purely 
economic and technical which are involved in forest management 
(Chapter IV). A sociological analysis may also complement an 
economic one in a study of the history of the forest economy (4), 
in studies of the relation of forest areas to community areas, and 
in an understanding of the values, living standards, and other 
characteristics of the labor force (18 ff.). The focus of a socio- 
logical analysis dealing with problems of policy, land use, and 
marketing is treated below. 

As indicated, there is a sociological interest in forest problems 
wherever attention is focused on the people engaged in forest 
production and use. These people include (a) persons dependent 
upon the forest and forest products for their livelihood, (b) all 
those living in forest communities, and (c) persons living else- 
where who use the forest — e.g., for recreational purposes. To be 
of most value to forest administrators, sociology must focus on 
the dominant social problems in a forest economy at a given time. 
These problems vary with the stage of forest development and 
with the outside social and economic milieu. Thus the sociology 
of forestry provides a wide range of research problems. The 
attempt here, however, is not to be exhaustive, but rather to 
indicate problems in forest production and utilization where socio- 
logical analysis has been or appears to be especially relevant and 
helpful. Eleven research areas will be mentioned. 

1. Community stability. This may be greatly influenced by 
the use of the forest. A project on this question is delineated 
below {if). All the suggested research areas which follow deal to 
a greater or lesser extent with aspects of this larger problem of 
how stability may be realized in forest communities. 

2. A social history of forest use. Such a history treats various 
social institutions and ideologies bearing on the forest. The forest 
economy is seen as a part of the total culture. The "myth of 
inexhaustibility" of forest resources is a case in point. The physical 
conditions, institutional channels, and related cultural factors 
making for the rise and perpetuation of this belief are treated. 
The research is closely related to that in topics 4 and 5. 

3. The process of policy making and the social controls by 
which policies are carried out. At this point sociology may make 
a contribution to forest management and the evaluation of forestry 
programs (12-160) by stating clearly the answers to two ques- 
tions: What are the general aims and objectives of forest policy? 
What group or groups have the power of decision on final ob- 



FOREST ECONOMY AT LARGE 1 15 

jectives? In answering the first question it will no doubt be found 
that several disciplines — forestry, economics, sociology, and others 
— are needed in clearly defining the major objectives. 

The greater the contribution of the forest to the total economy, 
the more significant is the question of who makes the decision on 
forest policy. A relevant question is whether the power of decision 
is concentrated or whether all major interests in the community 
or society have some part. 

4. Balancing population and resources. The population side of 
this problem requires a knowledge of population composition and 
employability, and of job opportunities. It is necessary to know 
among other things the age, sex, rate of growth, mobility, and 
training of a population, and to see these characteristics in rela- 
tion to the demands and the remuneration of the jobs in forestry 
and the other enterprises in an area. A study of the factors in- 
fluencing income available for family living is relevant here. The 
distribution of the population and trade-area organization in 
relation to the location of the forest and of forest employment 
are also of concern. The balancing of population and resources is 
a research area in which economic and sociological analysis could 
very effectively complement each other. The former would focus 
on job opportunities and resources and the latter on the charac- 
teristics, growth, and mobility of the population. Some related 
topics are 7, 9, //, 18, and Jl. 

5. Forest conservation. This is a field with many sociological 
implications, especially if other than professional foresters use 
the forest. Two foci of attention are (a) the folkways and prac- 
tices of conservation and exploitation and (b) the social qualities 
of good husbandry. The folkways of conservation and exploita- 
tion need to be not only described but also related to the other 
complexes in the culture which influence their operation. For 
example, strong family ties may hinder migration, bring popula- 
tion pressure on the land, and thus favor exploitation. Likewise, 
the lack of recognition of property rights may lead to the ex- 
propriation of absentee-owned forest through indiscriminate cut- 
ting and burning. Practices of forest conservation are also relevant 
to the tourist group: the nonresident users of the forest. Teaching 
conservation effectively to these persons calls for a knowledge of 
their needs and attitudes. The subject is closely related to topic ^7. 

6. A program of forestry education and public relations. Such 
a program utilizes knowledge of social organization and of educa- 
tional techniques and objectives. Through an educational program, 



Il6 RESEARCH IN THE ECONOMICS OF FORESTRY 

the policies and practices of the forest managers are made known 
to the users of the forest and to the public. Frequently, mal- 
practices in forest use and opposition to forest policy are a result 
of misunderstanding. Helpful here are surveys of forest users 
which seek to discover their opinions of forest policy, their needs 
with respect to the forest, and their beliefs and knowledge of 
recommended forest practices. Thus an educational program in 
the democratic tradition is a two-way street, from management 
to users and the reverse. Related topics are 28 and <?<?, in addi- 
tion to 1 2-1 6a. 

7. Marketing of forest products. This field of research, central 
in economic analysis, offers at least two fruitful areas for socio- 
logical investigation which would complement the economic study: 
(a) In the organization of small producers and in cooperative 
marketing (69), attitudes and customs relative to working with 
others frequently are highly significant, and analysis of participa- 
tion and leadership patterns is pertinent, (b) As has been done in 
other types of marketing, investigations might be made con- 
cerning the social, psychological, and cultural factors which lie 
behind the money demand for given forest products (Chapter 
VII). 

8. Impact on welfare and family life. This is a significant 
subject in evaluating the benefits of a forest economy. Timber 
workers in the past were noted for their mobility and lack of 
family ties. Even the men with families often lived in temporary 
camps, and family and institutional life lacked the stability and 
services found in established communities. The very high accident 
rate in the timber industry and the high percentage of unmarried 
males in many forest communities create special problems in 
public welfare. Related topics are found in the labor section of 
Chapter III. 

9. Religion, the arts, and related institutions as avenues of 
expression of forest life. Both religion and the arts are media 
through which the values of a group are expressed. If the forest 
is to be valued as it should be, it needs to be given recognition 
and integrated into the culture through these institutions. In 
other words, communities in the forest should also be of it. 
Hence the need for studying the process by which forest values 
are integrated into the culture. Examples are the expression 
through music and drama of the values of forest conservation 
and the negative values of destructive forest exploitation. Religion 



FOREST ECONOMY AT LARGE 1 17 

adds its sanction through teaching that the proper use of the 
forest is an act of good stewardship and that its destructive 
exploitation is a sin. 

10. Personal qualities and abilities possessed by successful forest 
personnel. Where the practice of forestry relates to public policy 
and education, skills other than a knowledge of silviculture and 
wood utilization are needed. At times, proficiency as an educator 
and community leader is necessary if the forester is to be success- 
ful in his assignment. Consequently, there is a need for job 
analysis and the training and selection of personnel in accord with 
the demands of given positions. 

11. Personality types molded by forest life. As an example of 
this kind of research, some attention has been given the lumber- 
jack, both in legend and in serious analysis. Isolated employment 
in the forest and forest industries is rapidly disappearing, and 
with it the distinct forest personality type, if one ever existed. 

17. FOREST USE AND COMMUNITY STABILITY— Harold F. Kaufman 

Purpose. To analyze the positive and negative factors bearing 
on stability of a given forest community. To suggest programs to 
reinforce the positive factors and at the same time minimize the 
negative factors. 

Definition. The term community stability, as used here, im- 
plies orderly change rather than a fixed condition. For an in- 
stitution to be lasting, especially in the modern world, it must 
gradually change to meet new conditions. For this reason the 
most stable type of community in the present day is probably 
one in which there is orderly change toward given goals: those 
goals embracing "the good life" in whatever way it is defined. 

Relation to the field. The practice of clean rather than regulated 
cutting has in large measure produced the boom-bust cycle for 
forest communities. Thus an obvious group of problems centers 
on how the management of forest resources (Chapter IV) relates 
to the stability of community institutions. This is not a simple 
and direct relationship in that good management from a technical 
point of view automatically insures stable community life. Rather, 
stable community life is one objective of forest management, 
requiring conscious planning like the other objectives. This ob- 
jective is explicitly stated in Public Law 273, the Sustained 
Yield Forest Management Act, passed by Congress in 1944. Such 
a recognition frequently results in technical forestry questions 



Il8 RESEARCH IN THE ECONOMICS OF FORESTRY 

and social and political problems shading into one another, and 
thus for an effective solution a united attack by all disciplines 
concerned is needed. 

Type, source, and analysis of data. After a preliminary state- 
ment of the problem, it is necessary to delineate clearly the types 
of data needed. Among the major topics included are a history of 
forest development, the problem of balancing population and 
resources, the impact of the forest economy on welfare and on 
the family and other social institutions, and educational and 
action programs to realize desired objectives. This means a com- 
plex study in which a number of areas in the field of the sociology 
of forestry are included. 

Data are secured from both secondary and primary sources. 
Population data are obtained from the U. S. Census, school and 
tax records, business records, and field interviews; statistics on the 
forest economy may be obtained from the several forestry and 
agricultural agencies. Most of the information on the organized 
activities of the community and on the various institutions must 
be secured in the field through the use of a schedule. An attitude 
and opinion survey might well be required for selected individuals 
and groups. The construction of such schedules and question- 
naires would be preceded by interviews with opinion leaders and 
also those possessing technical information. 

Because of the complexity of the proposed study, it is not 
possible to present detailed research procedures here. In general, 
procedures fall into two parts: (a) a general delineation of factors 
appearing to bear on community stability, and (b) a more detailed 
and careful study of each of these factors together with the 
evaluation of action programs relevant to them. If, for example, 
the first phase of the project suggests the hypothesis that public 
participation of a certain type in determining forest policy is 
desirable, then, in the second phase, such action would be taken 
and evaluated for its results. This second phase might well de- 
velop into a continuous evaluation program. 

References, (i) Beers, Howard W., and Catherine P. Heflin: 
People and resources in eastern Kentucky; Ky. Agr. Exp. Sta. 
Bui. 500; 59 pp.; Lexington, 1947. (2) Hypes, J. L.: The social 
implications of soil erosion; Rural Sociology 9, 4, pp. 363-375; 
1944. (3) Kaufman, Harold F. : Social factors in the reforestation 
of the Missouri Ozarks; Univ. Mo. M. A. thesis, 86 pp., type- 
written; Columbia, 1939. (4) Kaufman, Harold F., and Lois C. 
Kaufman: Toward the stabilization and enrichment of a forest 



FOREST ECONOMY AT LARGE 1 19 

community; viii, 95 pp., processed; Missoula, Mont., 1946. (5) 
Dale, Tom, and W. A. Ross: Conserving farm lands: planning for 
soil-erosion control, water conservation, and efficient land use; 
U. S. Dept. Interior, Office Education, Agr. Series 53, Bui. 201; 
vii, 104 pp.; Washington, 1939. (6) Shea, John P.: Getting at 
the roots of man-caused forest fires: a case study of a southern 
area; U. S. For. Service, Fire Prevention Studies, Series A, 2; 
4, 46 pp., processed; Washington, 1940. (7) Shea, John P.: The 
psychologist makes a diagnosis; U. S. For. Service, 4, 78 pp., 
processed; Washington, 1939. 



CHAPTER III 



The Agents of Production 



Land, labor, capital, and entrepreneurship are the agents of 
production. The flows of goods and services with which economics 
is concerned originate with these agents. The agents of production 
are often used interchangeably within the forest economy and 
outside. Accordingly, they can be fully understood only in the 
context of the general economy. 

The purpose of this chapter is to bring together, out of all 
economics research, studies of the agents of production which 
belong within the economics of forestry. Two criteria have been 
used in selecting the studies: first, studies of forest land as an 
agent of production are of course included; second, studies of other 
agents are included where the use of these agents materially 
affects the use of forest resources. 

As suggested in Chapter I, the distinguishing characteristic of 
forest-economics studies is their orientation rather than their 
subject matter. Thus research on labor as an agent of forest 
production involves labor markets, labor requirements, labor sup- 
ply, conditions of employment, and other matters such as are 
covered in studies within the general economy. The distinguishing 
feature of the labor research given the forest-economics label is 
that the use of the labor being studied may significantly condition 
the use of forests. Forest-economics research on the other three 
agents of production is similarly oriented. 

LABOR 

The object of studies in this section is to describe, explain, and 
evaluate the role of labor in the forest economy. After a general 
look at the market for forest labor (/<?), two topics are presented 
bearing particularly on the demand for labor (ip, 20) and two 
on the supply {21, 22). Three topics then follow that touch upon 
conditions resulting from the meeting of supply and demand 
in the market: wage rates {23, 23a) and conditions of employ- 
ment {24). 

Labor income and employment as aggregate quantities are 
considered as Flow of forest-economic activity, covered in Chapter 



AGENTS OF PRODUCTION 121 

II. Studies of labor in relation to operating forest enterprises 
appear in Chapters IV and V — e.g., topics 42, §yd, 61. 

18. MARKET FOR FOREST LABOR 

To ascertain and describe the factors operating in the market 
for forest and forest-industry labor and their role in determining 
wage rates and the volume and conditions of employment. 

This study brings together the factors in the demand for forest 
labor such as those considered in topic 19, and the supply factors 
such as those in topics 21 and 22, for the purpose of explaining 
labor quantities and " prices." The problem is best approached 
on an area basis and for a limited occupational group. However, 
the group should be selected in such a way that the factor of 
interchangeability among occupations will complicate the research 
as little as possible. The dependent variables are employment (9), 
wage rates {23), and conditions of employment (24); and the 
independent variables lying behind supply and demand include 
some of those discussed in the latter two topics. Also among the 
independent variables, labor productivity (20) and the activities 
of labor unions may loom large in the analysis. 

19. LABOR REQUIREMENTS IN FORESTRY AND FOREST INDUSTRY— James 

W. Cruikshank 

Purpose. To determine the quantity and quality of labor re- 
quired to perform specific operations in the management of forest 
properties and in the harvesting and manufacture of timber prod- 
ucts in an area. 

Definitions. In the case of forest-management operations, the 
quantity of labor is defined as the number of man-hours per acre 
required for such activities as fire prevention and suppression, 
road development and maintenance, planting, noncommercial 
thinnings and improvement cuttings, timber marking, manage- 
ment-plan preparation, and general supervision. The quantity 
of labor required for the harvesting and manufacture of forest 
products means the number of man-hours required per unit of 
production, such as the number of man-hours required to fell a 
thousand board feet of sawlogs or to saw a thousand board feet 
of lumber. Quality of labor refers to the degree of skill or training 
required to perform specific jobs and the distribution of the 
various skills within a particular forest industry or forestry opera- 
tion. 



122 RESEARCH IN THE ECONOMICS OF FORESTRY 

Relation to the field. The determination of labor requirements 
is basic to most economic analyses of the use of labor and capital 
in forest production. In timber management activities, labor- 
requirements data provide the basis for computing the number 
and quality of personnel required, and, when converted to wages 
and salaries, the cost of a major segment of the entire operation 
(jp, 41). The data are also basic to weighing management alter- 
natives that involve varying intensities of labor application, as 
in topic 42. Forest industries need information on labor require- 
ments to appraise the practicality of production at certain wage 
rates and selling prices and to aid in computing labor costs of 
various phases of their operations so that adjustments for greatest 
efficiency can be made (S7,S7 a )- Such information is also essential 
to studies of productivity, as in topic 20. Having knowledge of 
the number of man-hours required to log or saw various sizes of 
logs, the industrial operator has part of the information needed 
to analyze the effect of log size on the cost of his operation (57b). 
In addition, man-hour requirements per unit of production are 
essential to the analysis of the comparative costs to the operator 
of payment by the hour or on a piecework or contract basis (23a). 
Lastly, knowledge of labor requirements, both quantity and qual- 
ity, for specific operations provides the basis, when applied to 
appropriate forest area or production estimates, for estimating 
the total employment in forestry and forest industries (9) and 
the potential market for the various classes of forest labor (//). 

Forest management : data required. The information needed on 
labor requirements for forest management is of four general kinds. 
The first two of these define the labor requirements, while the 
last two concern the key variables which determine these require- 
ments: (a) the number, period of employment, and skills of the 
workers engaged on the various forestry operations; (b) their 
accomplishment in terms of area covered or results obtained; 
(c) kind of equipment used; and (d) a measure of the operating 
conditions. Examples for certain management operations illustrate 
the types of information needed: 

1. Fire protection. For a protected area, such as a state or 
national forest, the time period selected for study should reflect 
the full range of conditions likely to be experienced. For this 
period, data are needed on the number of man-hours expended 
on fire prevention, presuppression, and suppression by each class 
of worker, such as towermen, wardens, tractor operators, radio 
operators, laborers, information and education specialists, rangers, 



AGENTS OF PRODUCTION 123 

and other supervisory personnel. The total area and forest area 
protected should also be determined, as well as the relative fire 
hazard, the character of the topography, the type of equipment 
used, a measure of the average fire danger rating over the period, 
and a measure of the results obtained, in terms of number and 
extent of fires. 

2. Timber marking. For the various kinds of marking opera- 
tions — -e.g., saw timber only, pulpwood only, poles only, or various 
combinations of products — a determination should be made, for 
each area studied, of the number of acres marked, the volume of 
each product marked, the conditions of the timber stand, the 
topography, the kind of equipment used in marking the timber, 
whether the timber is tallied as it is marked, and the number of 
man-hours spent in (a) travel in duty status to or from the timber 
tract, (b) actual marking of the timber, and (c) supervision of 
the timber markers. The man-hours should be recorded by class 
of labor used, such as technical foresters, ranger school graduates, 
or local experienced woodsmen. 

3. Planting. For each of the planting operations studied, the 
number of acres planted should be determined, together with 
the spacing or number of trees planted per acre; the topography 
and planting conditions, including the extent of site preparation 
needed; whether the planting was done through the use of a 
planting machine or by hand methods; and how the work was 
organized. Also a record should be obtained of the number of 
man-hours spent in (a) travel in duty status to or from work, 
(b) actual planting of trees, and (c) supervision of planters. Man- 
hours should be segregated by class of labor — e.g., laborers, tractor 
drivers, planting foremen, technical foresters. 

Obtaining the data. Data for each class of operation may be 
collected from public and private forestry groups and individuals 
who are actively engaged in such operations. State and federal 
forest service records would undoubtedly be best for informa- 
tion on fire-control requirements, while both public and private 
sources should be investigated for such operations as timber 
marking and planting. 

To use timber marking as an example, it will be necessary to 
decide first upon the various classes or kinds of timber marking 
that are practiced in the area. These could be established on the 
basis of products, such as saw timber only, pulpwood only, pulp- 
wood and saw timber, poles only, or a combination of products. 
For each of these classes a preliminary decision must be made as 



124 RESEARCH IN THE ECONOMICS OF FORESTRY 

to the number and acreage of operations to be sampled; these 
can later be increased or reduced, depending upon the variation 
found within classes. Sources of information may include all field 
foresters in the area, whether in public or private employment. 
Names of private companies and consulting foresters engaged 
in timber marking in an area can be obtained from state and 
federal forestry agencies, and these same agencies can provide 
the names of public foresters from whom to obtain information. 

The sample as finally drawn should cover the full range of 
products marked in the area and, in addition, should be dis- 
tributed geographically to provide for an adequate sampling of 
the different timber-stand and topographic conditions that will 
affect labor requirements. 

Because of the great amount of time required to mark a large 
number of individual forest tracts, it is not likely that the investi- 
gator would be able to make actual time studies on going marking 
operations, except in a very limited way for checking purposes. 
Rather, he should depend upon records maintained by those 
engaged in marking. These can be records of past work, which 
in many cases may not have all the detail required, or preferably, 
if time permits, records that have been maintained in the desired 
form by the marker at the specific request of the investigator. 

Analysis of data. First, the available records for each marked 
area should be grouped into classes by products marked, and then, 
if necessary, each of these classes may be separated into two or 
more groups based upon topographic conditions. The size of trees 
marked, density of stocking, and management intent will also in- 
fluence the volume marked per acre and thus the rate of progress, 
but for general averages these variables can usually be ignored. 
Likewise, the size of tract marked will influence production rates, 
as more travel time will be required when marking is confined to 
numerous small areas. Here again, for general averages, all sizes of 
tracts marked for a specific product can be combined. 

The average number of man-hours of each type of labor re- 
quired per acre for each phase of the marking job on each class of 
marking operation may then be obtained by division of the 
appropriate totals. 

Timber harvest and manufacture. For timber harvesting and 
manufacture the following information is needed as a minimum: 

(a) classification of the various steps of the production process, 

(b) the volume of material produced in each step, (c) the number 
of man-hours of each skill required in each step to produce a 



AGENTS OF PRODUCTION 1 25 

given volume, (d) the character of operating conditions, (e) the 
kind of equipment used, and (f) the stage to which the product is 
carried in manufacture. Here again, as in the case of forest- 
management operations, the data are to serve two basic purposes: 
to define the labor requirements, and to define the key conditions 
that determine these requirements. The case of lumber, where 
both woods and mill operations are involved, will serve to illustrate 
the approach. It will be assumed that industry-wide data are 
sought. 

Data required. Because of differences in efficiency and operating 
methods, data for both logging and sawmilling must be obtained 
from a sample of all mill-size classes represented in the area. 
Knowledge of the distribution of the total mill population by 
size class is essential. 

For logging operations it is necessary to obtain data on the 
number of man-hours utilized and the related production, meas- 
ured in board feet, in felling and bucking, bunching or skidding, 
road and bridge construction, loading, hauling, and unloading. 
To obtain a measure of skills required, the man-hours should be 
recorded separately by class and skill of labor. For more precise 
analysis, information should also be obtained on size of timber 
cut; species; quality of timber; volume cut per acre; skidding 
distance; topography; hauling distance; kind of equipment used 
for felling, skidding, and hauling; and other logging improve- 
ments. 

For sawmilling operations it is necessary to obtain the number 
of man-hours utilized and the related production — measured in 
board feet — in milling, which includes sawing, trimming, and 
edging; in stacking of lumber; in drying; in lumber hauling or 
shipping; in mill moving, erection, and maintenance; and in office 
and general overhead. Here again the man-hours should be re- 
corded separately by class and skill of labor. The board-foot 
figures, if they are to be combined with those from logging 
operations, may have to be adjusted for difference in log rule or 
for overrun. Additional data required include size and species of 
timber, type of mill and equipment, and kind of lumber pro- 
duced — e.g., ungraded lumber, graded lumber, sawn cross ties. 

Obtaining and analyzing the data. For general purposes it may 
be sufficient to depend upon secondary sources. Particularly help- 
ful are the reports of the Bureau of Labor Statistics, U. S. De- 
partment of Labor. 

Specific, up-to-date information for a particular area can usually 



126 RESEARCH IN THE ECONOMICS OF FORESTRY 

be obtained only by collecting time and production data from a 
sample of the logging and sawmill operations. In the selection of 
a representative sample there are theoretically many factors to be 
considered. But for most purposes satisfactory results can be 
obtained by basing the sample upon mill-size class and species 
produced, if care is taken to obtain a good geographic distribu- 
tion of samples. 

To aid in classifying the sawmill population and affiliated log- 
ging operations by size class and species produced, the lumber- 
production reports of the Bureau of the Census may be referred 
to, some of which show number of mills by size class, by state 
and sometimes by county. Similar information has been pub- 
lished in forest survey reports and other publications of the forest 
experiment stations of the Forest Service, U. S. Department of 
Agriculture. Where county information is available, it can be 
used to guide the geographic distribution of the sample. The 
names of specific operators to sample can usually be obtained 
from farm foresters, state district foresters, forest rangers, or the 
experiment stations. Trade associations can also furnish names 
and addresses, particularly of the larger operations. 

A description of the various jobs — i.e., skills — for which man- 
hour information is to be recorded, can be obtained from publica- 
tions of the Employment Service, U. S. Department of Labor. 

For each logging and mill operation studied there are two ways 
to obtain man-hour data, the choice depending upon the detail 
and accuracy required. For general figures on broad phases of 
both the logging and milling operations, time-book records of 
man-hours, correlated with production, can sometimes be utilized, 
particularly at larger mills. For detailed information, it will be 
necessary to make time studies of each segment of the operation. 

On a small logging or milling operation, two or three men 
should be able to measure the time and related production in all 
segments of the operation; for large operations it may be neces- 
sary to limit observations to one segment such as felling, bucking, 
skidding, loading, sawing, or stacking. In either case, observa- 
tions should be extended over whole days, and usually for a 
number of days. In addition to actual work time, a record must 
be kept of the associated time of delay. In timing, the key crew 
member is observed and his time assigned to the whole crew; 
the idleness of another crew member would not be considered a 
delay so long as it did not hold up the key man. For example, in 
skidding, time is based upon the teamster and team, or tractor 



AGENTS OF PRODUCTION 127 

operator and tractor, whereas in sawmilling most time observa- 
tions are related to headsaw time. 

When the time studies for each segment are being made, ap- 
plicable data on such influential factors as degree of slope, timber 
volume per acre, skidding distance, tree size, kind of equipment, 
and product manufactured will be recorded if the effect of these 
variables on labor requirements is to be taken into account or 
analyzed. Such refinement is not usually necessary, however, if 
the sample of operations is representative of those in the area 
and the objective is the determination of average labor require- 
ments for specific operations. 

In analyzing the data, as in the case of forest management, 
man-hour rates are obtained for the various categories recognized. 
Totals, and averages weighted by output, are calculated as needed. 

References. (1) Topkis, Bernard H.: Labor requirements in 
lumber production; U. S. Dept. Labor, Bureau Labor Statistics 
Serial R 529; 17 pp.; Washington, 1937. (2) U. S. Dept. Labor: 
Job descriptions for the lumber and lumber products indus- 
tries . . . ; U. S. Employment Service, Division Standards and 
Research, 347 pp.; Washington, 1939. (3) Van Tassel, Alfred J., 
and David W. Bluestone: Mechanization in the lumber industry; 
U. S. Work Projects Administration Nat'l Research Project Re- 
port M-5; xx, 201 pp., processed; Philadelphia, 1940. (4) Smith, 
H. F.: Primary wood-products industries in the lower South; 
Southern For. Exp. Sta., Forest Survey Release 51; 19 pp., proc- 
cessed; New Orleans, 1940. (5) Reynolds, R. R.: Employment 
requirements of well-managed timberland in the lower South; 
Jour. Forestry 42, 12, pp. 898-900; 1944. (6) Lowther, Eugene J., 
and Roland V. Murray: Labor requirements in southern pine 
lumber production; Sou. Lumberman 174, 2182, pp. 44, 46, 48, 
50; 1947. (7) Marquis, Ralph W. : Employment opportunities in 
full forest utilization; Jour. Forestry 46, 5, pp. 334-339; 1948. 
(8) James, Lee M.: Time study technique; Jour. Forestry 47, 9, 
pp. 708-712; 1949. (9) Hasel, A. A.: Logging cost as related to 
tree size and intensity of cutting in ponderosa pine; Jour. Forestry 
44, 8, pp. 552-560; 1946. 

20. OUTPUT PER MAN-HOUR IN A FOREST INDUSTRY— Allan D. Searle 
and Adolph Scolnick 

The purpose of this research is to measure and explain changes 
in the amount of labor which accompany changes in physical 
volume of output of forest products. This ratio in industry be- 



128 RESEARCH IN THE ECONOMICS OF FORESTRY 

tween output and man-hours has an important relationship to 
the general price level and to wage levels, and in the long run is 
one of the principal determinants of the standard of living. Out- 
put per man-hour is also important in determining the com- 
petitive position of the individual firm. 

Changes in output per man-hour, or the reciprocal, man-hours 
per unit — "unit man-hours" — are not attributable to any one 
cause. Productivity data do not measure the specific contribution 
of labor, capital, or any other single agent of production. Instead, 
the measures show the joint effect of such influences as tech- 
nological improvements, rate of operations, flow of materials, and 
the skill and application of both workers and management. 

In planning a survey, consideration must be given to the use to 
which the data are to be put. These are some of the questions 
that might be asked: What have been the trends in output per 
man-hour in timber-products manufacture, and how do they com- 
pare with the trends in other branches of manufacturing industry? 
What does this comparison suggest regarding the place of forest 
industry in the American economy? How explain it — as in terms 
of wage rates and alternative employment opportunities, techno- 
logical development, size and organization of firms, and the like? 
How has output per man-hour varied with cycles in business 
activity? What has accounted for the differences in level and 
rate of change in man-hour output between different forest prod- 
ucts industries — e.g., lumber and pulp — and between regions? 
What differences may be observed among individual firms in an 
industry, and how are these related to such factors as degree of 
utilization of plant capacity and changes in plant equipment or 
layout? 

Measures of output per man-hour can be developed for forest 
industry as a whole; for individual industries separately — e.g., 
sawmills, plywood mills, logging camps; for individual firms; or 
for departments within the establishments of each industry. Man- 
hour output may be measured for logging operations, for the 
production of rough or finished lumber, the manufacture of furni- 
ture or other products of wood, as well as for the wholesaling and 
retailing of products made of wood. Productivity can also be 
measured in transportation : the volume of forest products trans- 
ported per man or per man-hour. Data may be presented for each 
product separately or for large or small plants separately or in 
any of a number of ways, depending on the need for measurement 
and availability of data. 



AGENTS OF PRODUCTION 129 

A program of productivity measurement can be developed in 
at least two ways. The first method involves construction of 
measures largely from data readily available from agencies of 
government, trade associations, etc. The second method requires 
collection of data directly from individual establishments in the 
industry. 

The first method, based on the use of secondary source data, 
ordinarily involves sources and segments of industry using varied 
reporting units, and consequently requires the construction of a 
production index and a man-hours index. The output-per-man- 
hour index is obtained by dividing the production index by the 
man-hours index. 

The production index is computed from detailed data on physical 
production published by trade associations and from other annual 
or monthly series of production collected by government agencies 
such as the Bureau of the Census and the U. S. Department of 
Agriculture. A set of weights, preferably unit man-hours, is de- 
veloped to combine the data on actual quantities of output of 
each product included in the production index. Occasionally unit 
man-hour weights are available or can be compiled for one or 
more years. These weights are ordinarily unavailable for any 
extended periods of time, however, and it may be necessary to 
use other weighting systems which approximate relative man- 
hours per unit. These other weighting possibilities, in order of 
preference, include labor cost per unit of output, value added by 
manufacture per unit, or total value per unit. The weights are 
generally for the base year. 

The index of man-hours can often be computed from data on 
employment and average weekly hours of production workers 
compiled by the Bureau of Labor Statistics. These employment 
and hours series are for the United States as a whole and refer 
to production workers, not total employment. The hours data 
usually, but not always, include hours paid for but not worked, 
such as paid vacation time. 

In order to assure comparability between the production and 
man-hours series, which usually are collected by different agencies 
for a variety of purposes, it is well, where possible, to adjust both 
indexes to levels indicated by the Census of Manufactures. To 
do this, census statistics on production and employment for the 
years 1939 and 1947 can be used to provide bench-mark indexes 
of production and employment for these two years. Average 
weekly hours data of the Bureau of Labor Statistics permit con- 



130 RESEARCH IN THE ECONOMICS OF FORESTRY 

struction of man-hour indexes for these two years. Indexes of 
production, employment, and man-hours for the intervening years 
may then be adjusted to the level of the census bench-mark 
indexes by a process of interpolation. 

The second method, based on primary data from individual 
firms, applies where secondary sources are not readily available. 
Generally, in work of this type by the Bureau of Labor Statistics, 
detailed specifications are prepared for a sample of products 
representative of an industry. Sample plants are then requested 
to submit data on the unit man-hour requirements for each of 
these representative products. Product indexes are computed by 
weighting the unit man-hours for the product of each company 
by the production of the company. An industry index is prepared 
by weighting each product index by the aggregate man-hours 
expended in the base year, or some representative period, in the 
manufacture of each product. Unit man-hour indexes are generally 
constructed showing trends in both direct — actual fabrication, 
assembly, and finishing — and indirect — maintenance, shipping, 
warehousing, shop supervision, etc. — man-hours per unit. Trends 
are shown by size of establishment and geographic location. Ca- 
pacity utilization may be compared with the change in produc- 
tivity, or plants which have made changes in equipment or layout 
may be compared with those which have not. 

This second method also lends itself to situations where it is not 
necessary to make use of statistical sampling. For example, it 
can be used in a case study of a typical modern sawmill compared 
with a mill operating under older methods. Comparisons can be 
made between modern plants at different periods of time, or be- 
tween modern American plants and modern European plants of 
similar size, or between plants in different regions of the United 
States. 

The indexes prepared from primary source data differ from 
those based on secondary sources in that in the former case the 
plant weights are usually fixed, so that the unit man-hours index 
does not measure the effect of marginal plants moving in and out 
of the industry, or of shifts in output from efficient to inefficient 
plants, and vice versa. 

The productivity analyst working with secondary data is faced 
with numerous problems. Presently available production statistics 
for sawmills, for example, are weak because the data are available 
only as a total for each species or species group, in terms of 
thousands of board feet. It is known, however, that unit man- 



AGENTS OF PRODUCTION 131 

hour requirements vary with the dimensions of the lumber sawed, 
the degree of finish, and other factors. For this reason, data on 
the output of sawmills are needed separately for i-inch and 2-inch 
boards, railroad ties, etc., as well as by degree of finish and by 
kind of wood, at least softwood and hardwood. It may also be 
more meaningful to develop indexes of man-hour output on a 
regional or in some cases a local basis, inasmuch as the character of 
the industry varies considerably from one area to another. 

In the case of furniture, to cite another problem, production 
data in physical units are lacking, and the statistician who must 
rely on secondary source data is reduced to the expedient of 
attempting to deflate a series on value of furniture produced, by 
a price measure. 

Indexes of output per man-hour developed from secondary 
source statistics must be examined for coverage and definition of 
the industry, which may change as a result of reclassification of 
products or of establishments. For example, the planing mill not 
operated in conjunction with a sawmill was treated as a separate 
industry in the Census of Manufactures in 1939, but in 1947 the 
planing mill was combined with the sawmill. In addition, it is 
important to recognize that some plants manufacture all or some 
of their raw material, while other plants purchase their material 
from other industries. Thus, the plywood industry makes some 
of the veneer used in the manufacture of plywood, and purchases 
the remainder. In order to make the statistics of plywood produc- 
tion comparable with the employment data, therefore, production 
workers in the veneer industry making veneer which is consumed 
in the plywood industry must be included in the employment 
index for the plywood industry. The index of man-hour output 
constructed from these data reflects changes in output per man- 
hour for the manufacture of veneer for use in plywood, and for 
plywood operations as well. Alternatively, workers producing 
veneer in plywood mills must be excluded from the employment 
totals for plywood. This procedure yields a measure of output 
per man-hour which is confined to plywood manufacture and is 
unaffected by changing man-hour requirements for veneer manu- 
facture. 

Measurement of unit man-hour trends from direct plant reports 
also entails difficulties. Problems of sampling may prove difficult, 
and costs will probably be high. It seems likely that some method 
combining the primary and the secondary source approaches may 
ultimately provide the solution. It should be possible, for example, 



132 RESEARCH IN THE ECONOMICS OF FORESTRY 

to develop for sawmills a set of man-hour weights by means of a 
direct-reporting technique which would permit the use of presently 
available annual production data so that industry-wide measures 
can be obtained. Data for individual products and for particular 
operations can be developed from individual mill reports, with no 
attempt made to represent the entire industry. This dual approach 
would have the advantage of greater precision, would provide 
more detail than is possible now, and would involve minimum 
cost. 

A valuable contribution to productivity analysis in some seg- 
ments of the forest industry can be made by detailed one-time 
studies of comparative unit man-hour requirements in a few 
representative plants (/<?). While such case studies do not provide 
industry-wide statistics, they do provide detailed data on unit 
man-hour requirements in major departments or sections of a 
given type of production facility, and for key operations within 
such departments. As a part of such studies, it is possible to 
compile information in quantitative and qualitative terms, on the 
elements in the production operation which determine each fa- 
cility's level of man-hours per unit — type of machinery and equip- 
ment used, job subdivision and organization, production controls 
and scheduling, and related factors. 

21. SUPPLY OF FOREST LABOR— Edith Adams 

Purpose. To determine and explain the supply of labor available 
to forest production in an area, and its changes with season and 
over longer periods. 

Scope and basic considerations. One of the first steps in this 
research is to define its scope: the industrial, occupational, and 
geographic coverage which is most suitable to the specific purpose 
at hand. It must be decided whether the problem is one of deter- 
mining the labor supply in timber management alone, or in 
other phases of forest production such as the gathering of gums 
and herbs, or in manufacturing industries engaged in the process- 
ing of lumber or other timber products. The study area will then 
be delineated. Once this coverage has been decided upon, the 
best approach for most purposes will be to study separately the 
major occupational groups of workers: the foresters, woodsmen, 
loggers, raftsmen, other woods workers, and, if they are to be 
included, the workers in the various groups of manufacturing 
plants. This procedure is suggested because the characteristics 
of the labor force and the trends in supply and employment may 



AGENTS OF PRODUCTION 133 

differ somewhat for each group. There may be, for example, 
increasing employment and labor supply in those occupations 
concerned with forest conservation, even though the trend in 
both employment and labor supply in lumber production is down- 
ward. Although there is a good deal of interchangeability among 
occupations, the sources of labor supply are not the same for all 
the major occupation groups, because of differences in training 
and skill required. 

The supply of labor can be represented, for statistical purposes, 
by the total number of persons who are either working or available 
for work. Measurements of the labor supply in these terms are 
provided by census statistics on the " gainfully occupied popula- 
tion" or the " labor force." Statistics on " employment" alone 
exclude a segment of the labor supply — namely, those persons 
without jobs who are looking for work. 

Demographic factors such as the size of the population and its 
distribution by age are among the most important determinants 
of total supply of labor in a country. Demographic factors also 
may affect the labor supply in particular industries, though in a 
less direct way. For example, when the population is declining 
and the number of young entrants into the labor force is smaller, 
industries such as forestry which require a young and vigorous 
labor force may find themselves in greater competition with other 
industries to secure the type of workers they need. 

Economic factors, more than demographic factors, however, 
determine the amount of labor available to particular industries. 
The competitive position of forestry with respect to the wages 
and conditions of work it offers will partly determine its ability 
to attract labor. Special requirements in education and training 
for certain occupations, age limits, geographical location, and the 
presence or absence of competing types of employment are among 
the other factors which bear on the size of the labor force. General 
economic conditions in the country also affect the number of 
workers willing to accept jobs in forestry. The number seeking 
work in this industry has shown a tendency to decline during 
periods of prosperity when jobs in higher-wage-scale industries 
are plentiful, and to increase during periods of depression when 
many workers are forced to fall back on less lucrative fields of 
employment. 

Relation to the field. The general purposes of studying labor sup- 
ply apply to forest labor as well as to other parts of the total labor 
supply. Knowledge of the available supply of workers is needed 



134 RESEARCH IN THE ECONOMICS OF FORESTRY 

by management in setting production goals, selecting locations 
for new industries, establishing wage rates, and the like. The 
government requires information on labor supply in formulating 
full-employment policies and encouraging the best possible utiliza- 
tion of the nation's manpower. During time of war, data on the 
country's labor supply are especially needed for allocating man- 
power to the armed forces and essential industries. These data 
also serve as an index of economic well-being and indicate when 
government action is required to alleviate conditions arising from 
surpluses of labor supply in relation to demand. Information on 
the supply of labor in relation to the demand for it in different 
industries and occupations can also be effectively used to channel 
new workers into those fields where opportunities are greatest. 

Forest labor supply may be analyzed in relation to other topics. 
In combination with studies of employment (<?) or labor require- 
ments (/<?), it can show the relative balance of the demand and 
supply factors and the extent of unemployment in the industry. 
Forest labor supply can also be analyzed in relation to the wage 
structure of the industry (23) to determine how these factors 
influence each other, or to explain wage differentials among various 
geographical areas. Data on labor supply and employment can be 
used in estimating future costs of management, analyzing the 
distribution of income (8) among the factors of production, and 
for studies of productivity under different methods of manpower 
utilization (20). These data are also of value for analyses of forestry 
problems in particular areas (12) and for studying the factors 
influencing the location of forest operations within an area (2). 

Obtaining and analyzing the data. The decennial Censuses of 
Population provide the best source of the essential statistics for 
studying long-term trends in labor supply. It should be noted 
that the statistics from successive censuses may not be strictly 
comparable as a result of changes in concept, in coverage of partic- 
ular occupation or industry groups, or in the period of the year to 
which the data relate. Census publications usually contain a state- 
ment of the nature of any such differences so that users of the 
data may make appropriate allowances for them. 

Statistics on the number of workers by states or other political 
subdivisions furnish the information necessary for studying the 
geographic distribution of employment and its shifts over time. 
Statistics from recent censuses will also show the employed and 
unemployed components of the labor force separately, thus per- 
mitting analyses to be made of the extent to which the demand 



AGENTS OF PRODUCTION 135 

for forest labor has equaled the supply in different regions and 
under different economic conditions. 

Cross-classifications of data on industry and occupation with 
demographic characteristics such as age and sex are generally 
available from population censuses and are exceedingly valuable 
for analyzing labor supply. From the long-range point of view, 
the supply of forest labor may be affected by such factors as the 
growing proportion of older workers in the labor force, a phe- 
nomenon which has accompanied the trend toward an older popu- 
lation. If economic activity continues at a high level, the forest 
economy may be forced increasingly to compete with higher- 
wage fields for the young male workers it requires. Whether the 
aging of the labor force will have any important effect on the 
supply of forest workers is a problem which the student of forest- 
labor economics may investigate. 

Historical data on the numbers and types of workers in a 
particular industry may throw light on probable future develop- 
ments in labor supply if an effort is made to ascertain the factors 
responsible for the changes which occurred. In attempting to 
explain the long-term changes in the forest labor force which 
the census data reveal, the student may consider such possible 
causal factors as these: (a) changes in the size and composition of 
the labor force as a whole; (b) the shift away from primary 
industries, such as agriculture and forestry, to secondary and 
tertiary lines of production; (c) geographical changes in the con- 
centration of forest industry; (d) large-scale industrial develop- 
ment in certain areas which may have drawn away some of the 
labor supply usually available to forestry; and (e) general con- 
ditions of economic prosperity or depression in the country. 

Recent censuses also furnish data on the structure of the labor 
force with respect to the number of workers who are self-employed 
and the number who work for public and private employers. 
These statistics may be of special interest in showing the develop- 
ment and importance of government as an employer in forest 
industry. 

A special type of long-term labor-supply question is the number 
of trained scientists and technicians such as foresters. Some indica- 
tion of the supply of such personnel may be obtained from 
statistics on degrees granted in forestry curricula, which are pub- 
lished periodically in the Journal of Forestry . 

Another aspect of this research is seasonal labor supply. For 
studies of this aspect, census data are inadequate. Field surveys 



136 RESEARCH IN THE ECONOMICS OF FORESTRY 

may provide the best means of obtaining the type of information 
desired : how much of the labor force in forestry and forest industry 
at peak seasons is normally engaged in other activities at different 
times of the year (22). The relationship between farm labor 
supply and forest labor supply is of special significance, since it 
may show to what extent farming and forestry, which have their 
peak employment periods at different seasons, supplement each 
other in providing year-round employment for a segment of the 
labor force. Data from censuses or sample surveys which show 
the number and type of farm workers who are without work 
during certain parts of the year may give an indication of the 
sources of seasonal labor supply that might be utilized for forest 
work. The amount of migratory labor employed in forestry and 
forest industry may also be investigated by means of special 
surveys, if this type of labor is an important factor in the labor 
supply in an area. 

Because of the nature of the forest economy, particularly the 
woods part of it, manpower needs may sometimes be adapted to 
labor-market conditions. During periods of labor scarcity, some 
forest operations may easily be postponed until periods of eco- 
nomic recession when labor is more plentiful. On public forests, 
work projects may be set up when required to take up the slack 
in employment. In periods of extreme labor shortage, however, 
the primary need may be to recruit replacements for those workers 
who leave forest occupations to enter the armed forces or transfer 
to higher-pay industries. At such a time, sample surveys may 
provide a valuable inventory of available types of labor skills 
which might be utilized. Likewise, in periods of serious unemploy- 
ment, statistics on the characteristics of persons seeking work, 
with respect to age, sex, previous occupations, etc., are useful 
in indicating the number of unemployed who might be directed 
into conservation projects. 

The problem of labor supply may be studied from another 
approach: that of determining the availability of workers of cer- 
tain types for a specific project in a particular locality. Once 
manpower requirements for the project have been set (/p), in- 
vestigations must be made to determine whether an adequate 
labor supply exists locally or whether sources outside the area 
must be drawn upon. For this purpose, useful information on the 
numbers and types of persons available for work may be obtained 
from local Employment Service offices, from agencies concerned 
with the administration of unemployment insurance, or through 
special surveys. 



AGENTS OF PRODUCTION 137 

22. PART-TIME EMPLOYMENT IN THE FOREST ECONOMY 

To determine, explain, and evaluate the net benefits of the 
complementary use of the same labor in forests and forest in- 
dustry on the one hand and in nonforest occupations on the 
other. 

The labor interchange between forestry and farming mentioned 
in topic 21 is possibly the most notable case in point and may be 
made the subject of the study. Secondary sources of data on part- 
time farm employment, supplemented by special local surveys, 
will provide the facts on the magnitude of the interchange. The 
surveys should be designed to reveal what factors promote the 
interchange and the effect of the interchange upon farm income, 
farm woodland management, off-farm wage rates and conditions 
of employment, output and stability of timber industries, atti- 
tudes toward forest conservation, and the like. 

23. WAGE STRUCTURE IN FOREST INDUSTRY— Lily Mary David 
Purpose. To ascertain the rates of wages paid in different 

occupations and branches of forest activity. The data will be 
useful as a factual basis for collective bargaining and wage deter- 
mination, for giving legislators and the general public a picture 
of wage levels for purposes of statutory minimum-wage determina- 
tion, and for many other such purposes. The data will be useful 
also in other research (see, for example, J, 7, //, 18). 

Generally wage surveys are not intended to provide informa- 
tion for estimating costs. The approach would have to be entirely 
different to serve this purpose — it would be important to include 
all direct and indirect labor costs, including overtime pay and 
shift differentials. Presumably an effort would have to be made 
to translate supplementary wage benefits into monetary terms for 
inclusion as a cost item. 

Basic considerations. With the increasing importance of sup- 
plementary wage practices in both collective bargaining and per- 
sonnel administration, wage surveys typically go beyond mere 
monetary earnings. They include data on hours of work and on 
such matters as paid vacation plans, provisions for insurance and 
pensions, and paid holiday provisions. 

Forest industry presents certain special problems in wage sur- 
veys. The problems that are more or less peculiar to this field 
stem from three factors : the location of the industry in relatively 
rural sections; the large number of business and production units, 
many of which are relatively small and mobile; and the seasonal 
nature of some of the operations. Surveys in which occupational 



138 RESEARCH IN THE ECONOMICS OF FORESTRY 

information is needed are further complicated by the major differ- 
ences in the industry among different sections of the country, 
notably between the South and the Pacific Coast. 

Information to be obtained. The types of information to be ob- 
tained will vary with the needs that give rise to the study. Among 
the questions requiring decision are: (a) Should information be 
presented in terms of weekly or hourly rates? (b) Should earnings 
data include premium pay for overtime? (c) What should be done 
about nonproduction bonuses or incentive earnings? (d) How 
should provisions for room and board be reported? Generally in 
surveys made by the U. S. Bureau of Labor Statistics, nonproduc- 
tion bonuses are excluded but incentive earnings and cost of 
living bonuses are included. For industries such as lumber, wage 
information by job is typically presented in terms of hourly 
earnings, excluding premium pay for overtime as well as non- 
production bonuses. Where provisions for room and board are 
reported, it is usually preferable to report them separately from 
wage data instead of attempting to add a wage equivalent to the 
wage rates. 

Another decision involves a choice between presentation of 
data by occupation or only for all workers regardless of job. 
For purposes of collective bargaining or wage administration, or 
to permit comparison of wage levels from one area to another, 
occupational data are extremely important. On the other hand, 
when the main purpose of the study is to provide data for mini- 
mum-wage purposes, occupational information is of secondary 
importance. 

Scope. This involves industrial and in some cases geographic 
scope as well as questions as to the size and other characteristics 
of establishments to be included. In the forest industries there may 
be a number of questions regarding industrial coverage. For ex- 
ample, should a study be limited to sawmilling, including logging 
operations of integrated mills, or should independent logging 
operations be studied as well? The answer to this question may 
vary among regions. For example, in the South the number of 
workers in independent logging camps is relatively small. 

Among the factors that should be considered in determining 
the scope of the survey are similarity in occupational structure 
and in wage levels, the relative importance of the various industry 
segments under consideration, the resources that are available, 
and the degree of accuracy that is needed in the results. Some of 
the considerations just discussed apply also to decisions as to the 



AGENTS OF PRODUCTION 139 

size and type of establishment to be studied. The expense of a 
wage survey per worker studied, particularly when conducted by 
field visit rather than by mail questionnaire, is greatly increased 
when very small establishments are included. This is especially 
true in industries such as lumber that in some areas are widely 
scattered and have plants that are difficult to reach. The decision 
as to the minimum size limit for a wage survey depends not only 
on available resources but on the proportion of total employment 
that is found in units of various size and on the extent to which 
wage levels differ with size of establishment. Where the survey is 
intended to provide information on wage levels regardless of 
occupation, particularly for use in considering minimum wages, 
it may be necessary to include smaller establishments than in 
studies where the major consideration is occupational informa- 
tion. 

Decisions with respect to geographic scope involve the type of 
breakdown to be made in presenting the results of the study. 
The areas for which wage data are to be shown should be deter- 
mined by such factors as the extent to which wages differ from 
area to area, the areas that are units in collective bargaining, and 
the extent to which the industry is concentrated geographically. 
Basic differences in products, such as differences in the type of 
wood processed, may also be a factor in determining boundaries. 

It is necessary to decide whether any breakdowns by product or 
type of operation will be presented. For example, if it is decided to 
include independent loggers, should separate information be pre- 
sented for them and for the integrated logging operations of 
sawmillers? Such a decision affects the number of establishments 
that must be included in the survey. In general, the broader the 
scope of the survey in terms of products covered, the more break- 
downs it is desirable to present. 

Source of data. Once the scope of the survey has been deter- 
mined, obtaining a list of establishments that fall within this 
scope is the next major step. This is a particularly difficult and 
time-consuming job in the forest industries, especially if it is 
decided to include independent loggers and establishments en- 
gaged in pulpwood logging. Because of their seasonality, and, in 
certain areas, their small size and high rate of turnover, these 
establishments are seldom included in available lists. The list 
should provide as much information about the establishments as 
possible. For example, it is useful to know size, preferably in terms 
of employment; type of equipment; type of timber; products, 



140 RESEARCH IN THE ECONOMICS OF FORESTRY 

where a variety of products is produced by the industry; and 
unionization. 

The next step is to select a sample of establishments. Particu- 
larly in some branches of forest industry, the number of estab- 
lishments is so great that it is neither feasible nor necessary to 
study all of them. The number that should be studied depends 
on a number of factors, including the degree of accuracy needed in 
the results, the total number of establishments in the industry, 
the breakdowns — for example, by product and area — to be shown, 
and the extent to which wage levels, occupational structure, and 
wage practices vary from one establishment to another. 

The sample establishments should be chosen so as to be repre- 
sentative of the industry in size, product, and location. Obviously 
independent and integrated establishments should be included in 
proportion to the occurrence of such establishments in the entire 
industry. 

When occupational information is to be presented, it is necessary 
to select the jobs for which separate information is to be obtained, 
and these jobs should be defined in advance. However, job titles 
cannot be relied on to reflect job content. The same titles may be 
used in different establishments to refer to essentially different 
occupations, or the same type of work may be referred to by 
varying titles in different parts of the country. For this reason, 
it is necessary to use a fairly detailed description of duties in 
classifying workers by occupation. The Bureau of Labor Statistics 
has found that descriptions written in terms of alternative com- 
binations of duties are advisable. For example, many of the 
bureau's job descriptions are written somewhat as follows: "per- 
forms most of the following" or " performs a combination of the 
following duties." 

For practically any purpose, it is unnecessary to obtain detailed 
information on all jobs in an industry. Workers that do not fall 
within the selected or key occupations should, of course, be in- 
cluded in the study if an over-all industry average or a distribu- 
tion of all workers in the industry by earning level is to be pre- 
sented. 

Collecting the data. It is possible to make wage studies either 
by mail or by personal visit. The latter method, whereby the 
researcher obtains information direct from company records, has 
the advantage of insuring greater comparability in such matters 
as occupational classification, and generally greater accuracy be- 



AGENTS OF PRODUCTION I4I 

cause instructions can be more thorough and complete. It is, of 
course, a relatively costly procedure. 

Sending out questionnaires by mail is less costly, but probably 
less information and less reliable information can be secured in 
this manner. Instructions accompanying a mail questionnaire 
must of necessity be brief, and a number of problems can and do 
arise in their interpretation. Another serious source of error may 
arise from the failure of certain establishments to answer the 
questionnaire, and it is therefore important to provide for follow- 
up visits to some of the nonrespondents. Otherwise, it is not 
possible to state with confidence how representative the results 
of the study are; it may be, for example, that many of the least 
efficient or the lower-wage firms failed to reply. 

Reviewing the data. However great the care in preparing in- 
structions, it is necessary to edit mail questionnaires carefully. 
Such editing should aim at catching serious inaccuracies in occu- 
pational classification and in the wage information itself. Editing 
should include coding and clarifying the entries so that those 
who are to tabulate them will understand them, and also editing 
of the final tabulations to insure accuracy. A decision must be 
made as to what information can actually be presented — e.g., 
whether the information for a given job is reliable and important 
enough to warrant its presentation, and whether it can be pub- 
lished without disclosing the operations of individual companies. 
Although plans should be made in advance as to the type of 
breakdown for which separate information is to be presented — 
for example, by product and size of establishment — it is necessary 
to review these plans in the light of data collected to be certain 
that sufficiently reliable information is available to warrant pres- 
entation. 

In interpreting wage data, great care should be exercised in 
inferring causal relationships between factors for which data are 
presented and wage levels. The fact, for example, that wages may 
be found to be higher in union than in nonunion establishments 
does not necessarily indicate the extent to which wages have been 
increased as a result of unionization. It is entirely possible that 
some nonunion establishments have increased wage levels in order 
to compete for labor with unionized establishments, or in order to 
keep a union out. Similarly, because of the interrelationships be- 
tween such factors as unionization, size of firm, and method of 
wage payment, a tabulation of wages according to any one of 



142 RESEARCH IN THE ECONOMICS OF FORESTRY 

these factors does not indicate the extent to which that factor 
alone has resulted in interplant differences in wage levels. Be- 
cause of the limited number of establishments studied, it is gen- 
erally difficult to divide establishments into categories that actu- 
ally isolate the influence of any one of these factors. 

Questionnaires used by the Bureau of Labor Statistics in its 
wage surveys — together with job descriptions, instructions for 
surveys, and final reports — can be obtained from the bureau. 

23a. HOURLY VERSUS PIECE-WAGE RATES IN FOREST EMPLOYMENT— 
Vernon H. Jensen 

Purpose. To determine the effect of hourly rates of pay versus 
piece rates of pay upon real labor reward, forest enterprise, and 
the social returns from the forest economy. 

The advantages of one system of wage payment over the other 
can be interpreted only in light of some purpose or combination 
of purposes, such as to maximize worker money income, to maxi- 
mize units of output, to assure the best quality of product, to 
reduce labor costs, or to maximize the well-being, however de- 
fined, of those involved in the forest economy: workers, enter- 
prisers, or society as a whole. If the effects of wage-payment 
practice can be ascertained by observation and measurement of 
all relevant factors in the situation, understanding will be de- 
veloped which will permit a rational approach to wage payment 
in pursuance of whatever objective is at hand. 

Definitions. Hourly rates of pay describes the situation where 
workers are paid in accordance with the amount of time put in at 
the job. 

Piece rates of pay describes the situation where workers are 
paid for the amount of work done as measured by units of output 
satisfactorily completed. 

Real labor reward may be defined to include two elements, 
monetary income and nonmonetary rewards. Monetary income 
is the dollars in the pay envelope; it may be thought of in terms 
of daily, weekly, monthly, annual, or, possibly, lifetime wages. 
Nonmonetary rewards include those elements of working con- 
ditions which are of value to the worker, which may be a cost to 
the employer, but which are not a part of the money in the pay 
envelope: steadiness of work, physical facilities for doing work, 
safeguards against injury, sickness care, recreational facilities, 
pensions, and other conditions related to the well-being of work- 



AGENTS OF PRODUCTION 



H3 



men which influence a worker's attitude toward his job and his 
productivity. 

Forest enterprise should be thought of in terms of ownership of 
forest resources. The long-run as well as the short-run interests 
should be kept in view, and the effects occurring within each 
period of time should be investigated. 

Social returns include not only the useful products made avail- 
able through productive activity, but also the social advantages 
which inhere in maintenance of human and forest resources on a 
perpetual basis. 





Monetory income 


Short term 




Worker 


Nonmonetary factors 


Life span 
Speed up 






Health 












Accident hazard 


Hourly rotes 




Morale 


of pay 








Wages 




Product for sale 


Quantity 
Quality 




Enterprise 


Labor cost 












Investment i 


Preservation 
Maximization of return 


Piece rates 
of pay 




Product for consumption 










Society 


Preservation of resources 


Human 




s 01 






Superv 


sion 


fher managem 


![horesr 
ent-worker relations 



(including the setting 
and administration of 
standards of work) 



Interrelationships of factors within the field. The preceding dia- 
gram is designed to show some of the relationships of relevant 
factors to one another within this field of study. It should not be 
taken as anything more than suggestive. 

Procedure. As concerns the worker, data are needed to show the 
comparison of monetary income under hourly rates of payment 
with that under piece rates of payment. Information is also 
needed to compare the nonmonetary rewards as affecting on-the- 
job and off-the-job well-being of the worker under the two sys- 
tems of wage payment. To what extent is the worker speeded up, 
his health impaired, and thus his working life reduced under one 
system or the other? What influence does the method of wage 
payment have upon the hazard of accident? Does the system of 



144 RESEARCH IN THE ECONOMICS OF FORESTRY 

wage payment affect worker morale and hence his contribution to 
the job? From the enterprise point of view, data are needed for 
each of the two systems on labor costs (including cost of super- 
vision) and on forest utilization, and output. To what extent is 
there a loss due to poor workmanship, such as breakage and 
wastage of timber, under one system as compared to the other? 
The foregoing data will also serve to throw light on the effects of 
the wage-payment system from the social point of view. 

It is essential that in each case the comparative data on the two 
methods of wage payment be taken from situations where con- 
ditions are similar. How significant are conclusions relevant to 
one tvpe of situation, when applied to another — for example, 
small as against large operations? 

Sources of information in this field are relatively meager, as they 
are in the whole field of wage analysis. To gather relevant informa- 
tion it will be necessary to study comparative situations or to set 
up controlled studies where measurement can be made of the 
effects of the two wage-payment practices. 

In making comparisons or in setting up a controlled study it is 
important to keep in mind that there is a wide range of variables 
which, at first blush, make it appear unfeasible to apply the piece- 
rate system in forest employment. Generally, two conditions have 
to exist before a piece-rate basis of payment can be utilized without 
creating overt or hidden resentment. First, output must be easily 
measurable in some sort of standard units, and second, conditions 
under which work is done must remain relatively unchanged from 
one period of time to the next. 

When such conditions exist, the basic attitudes of workers and 
employers toward piece-rate systems usually will not run counter 
to each other, provided reasonable practice prevails. True, in 
logging, for example, the amount of merchantable product in a 
log can be measured quite accurately: units of output are measur- 
able. On the other hand, the requirement that the conditions 
under which the work is done shall remain relatively unchanged 
over time cannot be met unless the variables in the situation can 
be handled adequately. For example, it would be necessary to 
design a sliding rate of payment for piecework which would allow 
for the fact that output per unit of effort varies with such con- 
ditions as tree size, species, terrain, underbrush, and so forth, and 
which would equalize the returns from given effort, over time 
and also among workers,, under these varying conditions. 

For any type of forest employment, logging or some other, if 



AGENTS OF PRODUCTION 145 

comparative or controlled studies are undertaken, the many vari- 
ables which influence the amount of effort needed to accomplish 
a particular job must be considered. 

References. (1) Slichter, Sumner H.: Union policies and in- 
dustrial management; Institute of Economics Pub. 85; xiv, 597 
pp.; Washington, 1941; Ch. XL (2) Dickinson, Z. C: Collective 
wage determination; xviii, 640 pp.; New York, 1941. (3) Lytle, 
C. W.: Wage incentive methods; xix, 462 pp.; New York, 1942. 
(4) Mackenzie, D.: "Wage incentives;" Advanced Management 
9, pp. 129-135; 1944. (5) Pigors, P. J. W., and C. A. Myers: 
Personnel management; ix, 553 pp.; New York, 1947; Ch. 17. 

24. CONDITIONS OF EMPLOYMENT OF FOREST LABOR— William S. Hopkins 

Purpose. To discover, explain, and sometimes to evaluate the 
various working conditions in forest management, logging, and 
timber processing. The results will have direct value and in 
addition will serve as segments of two larger research programs: 
(a) to find ways of minimizing labor-management conflict in the 
industry, and (b) to improve efficiency and hence reduce the per- 
unit labor cost. 

Definition and scope. The term conditions of employment is 
here used to include arrangements for housing, meals, other per- 
quisites, safety and health, hours, grievances, and welfare pro- 
grams. It does not include problems of unemployment, labor 
requirements, techniques of hiring, or wages, some of which are 
discussed in other topics. Discussion of labor productivity (20) is 
excluded from this study because it is a factor in the determin- 
ation of labor requirements (ip). The incidental effects of man- 
agement policies upon labor productivity, however, are inevitably 
included. In general, the occupations covered include those in 
logging and other woods work and the processing of raw timber 
products, including incidental transportation of these products to 
the processing plants. 

Relation to the field. Historically, working conditions have 
been a major cause of labor-management dispute in the logging 
and lumber industries. Nearly all logging and many milling oper- 
ations are located on sites remote from cities, where the typical 
urban housing, mercantile, and restaurant establishments are 
unavailable. The management is therefore obliged to furnish these 
facilities. The typical urban employer can properly disavow any 
concern with off-the-job activities of his employee. Where the 
latter eats and sleeps is his own affair; the employer's responsi- 



146 RESEARCH IN THE ECONOMICS OF FORESTRY 

bility does not extend beyond the premises of employment. In the 
forest, however, a different situation prevails. In the typical 
logging camp, the employer must furnish board and lodging, and 
seldom can he ignore the recreational needs of his employees. 
" Conditions of work" are not limited to the time spent on the 
job; they become the "conditions of living." 

The student pursuing a study within this area must not forget 
its close relation to employment practices and especially to wages 
(22 , 23, 23a). These are separable only for purposes of investigation 
and reporting. On the other hand, the subject of this study is 
closely related to the operator's cost of doing business (j/a), 
and eventually to the price structure of the industry (80). In 
brief, it is a major part of the important study of collective 
bargaining in the woods and in the mills. This industry has had 
more than average turmoil in labor-management relations. Stabi- 
lization of the industry will require greater stabilization in labor 
relations, which in turn cannot be accomplished until the facts are 
better known and more fully understood. 

Data required, compilation, and analysis. Forest labor has 
undergone less scientific investigation than has the labor of most 
other major industries. Although a few good studies have been 
published, large segments of the subject have been practically 
untouched. It therefore furnishes a highly attractive area for 
research. This study is not one which can be conducted within the 
confines of a library, since most of the data must be collected 
from primary sources. After perusing the existing publications, 
some of which are listed below among the references, the investi- 
gator will need to do a great deal of interviewing in the field. 
For this reason, studies should preferably be local in area. 

Before undertaking a study of the employment conditions of 
forest labor, a meticulous understanding of the content of various 
job classifications is essential. Familiarity with jobs in the woods, 
gained through practical experience, is not enough, since job 
descriptions vary from place to place and from time to time. It 
would be well to begin with the descriptions which appear in the 
Dictionary of Occupational Titles and the Standard Industrial Clas- 
sification Manual, both published by the U. S. Government Print- 
ing Office. During World War II, a considerable standardization 
of job titles in actual use occurred as a result of the needs arising 
in the presentation of cases before the War Labor Board and its 
subsidiary, the West Coast Lumber Commission. This material 
can be found by referring to the cases arising in the region under 



AGENTS OF PRODUCTION 147 

investigation. With this material as background, the student will 
need to go into the field and uncover special local practices and 
customs. Unless the actual job content is known and defined, 
comparative studies are impossible. 

Another type of study which may constitute a research project 
in itself but which, in any event, must be done before any further 
work is undertaken, involves becoming familiar with the trad- 
tional practices in providing off-the-job services. For example, it 
is sometimes customary for a company to furnish transportation 
to a nearby town on week ends and holidays. The practice in this 
regard varies from place to place, but where it is established it 
acquires considerable importance in the eyes of the employees. 
Similarly, there are various practices with respect to laundry 
charges, company stores, living accommodations, the provision of 
working equipment, and recreational facilities. It must be re- 
membered that traditions acquire considerable force in the forest 
industries, and an understanding of these traditions is essential to 
any study of labor conditions in any segment of this group of 
industries. 

Since there is some competition for labor among the various 
extractive industries located in or near forests, an investigator 
should also acquaint himself with the comparable conditions in 
such establishments as may exist in the area under study, whether 
they be engaged in mining, fishing, agriculture, or some other 
field of production. No industry operates in a labor-market 
vacuum. The student must know something about the adjacent 
industries. 

A clue to the more pressing problems arising under the general 
heading of conditions of employment can be found by referring 
to the principal causes of dispute between management and labor. 
Most of the important cases of recent years are reported in the 
annual reports of the National Labor Relations Board, the pub- 
lished arbitration cases of the Bureau of National Affairs and the 
Prentice-Hall labor series, and the reports of the U. S. Concili- 
ation Service and the Industrial Relations Section of the U. S. 
Bureau of Labor Statistics. Further information can usually be 
obtained from the company and the union involved. 

Reference to the cases mentioned in the preceding paragraph 
will suggest that many of the more critical problems arise out of 
the fact that two rival unions, AFL and CIO, exist in the industry. 
There are certain differences in union policies which, manifested in 
collective-bargaining agreements, yield special employment prac- 



148 RESEARCH IN THE ECONOMICS OF FORESTRY 

tices. Since these differ widely from time to time and from place 
to place, detailed statements of the problems cannot be cited here. 
However, it is highly desirable that more specific information be 
assembled through research projects. 

Since woods operations stand high in the list of accident sta- 
tistics, it would appear that studies of safety factors are of ex- 
ceptional importance. Partly because of tradition and custom, 
workers are often less willing to undertake safety measures than 
is management. An understanding of the position of labor on such 
matters is therefore necessary. 

Another problem of major importance lies in the fact that the 
lumber industry in many respects lends itself to multiple-em- 
ployer bargaining, and yet this method has had slight develop- 
ment. It is desirable that the reasons for this lag be studied and 
analyzed. 

Before attempting to do research in the field, the investigator 
must be careful to explain his program to responsible represen- 
tatives of both management and labor, and should endeavor to 
secure their cooperation. If he fails to do this, he will not only 
meet with small success but may create suspicions which could 
harm the industry. 

No investigator should undertake studies in this field without 
having first had some training in labor economics. He will need a 
basic knowledge of both labor relations and personnel practices. 
Especially, he must need to know that the problems surrounding 
labor-management relations are never as simple as they first 
appear. He is dealing with a complex interrelation of economic, 
psychological, sociological, and political factors. He may discover 
that the deeper he probes, the more fully he understands the 
complex situations necessarily combined in statistical tables. The 
problems arising out of the employment of labor are very human 
problems. 

Special studies which can be included under the broad title 
here discussed are of great variety and number. The data needed 
and the precise methods of analysis are likewise so varied as to 
preclude detailed discussion here. No treatise on the methodology 
of such studies has been published, and the researcher will find it 
necessary to devise and adapt his own methods as he proceeds. 
References Nos. 1, 3, 4, 5, and 10, below, while not dealing with 
methodology as such, will provide valuable clues. Reference 16, 
which deals with the automobile-manufacturing industry, is an 
excellent type case, clearly outlining the methods used, which 
might well be adapted to a study of the forest industries. 



AGENTS OF PRODUCTION 1 49 

References. (1) Buechel, Henry Theodore: Labor relations in 
the West Coast lumber industry; State College of Wash., M. A. 
thesis, 7, 180 pp., typewritten; Pullman, 1936. (2) Hopkins, Wm. 
S.: Seasonal unemployment in the state of Washington; Univ. 
Wash. Publications in the Social Sciences 8, 3, pp. 81-168; Seattle, 
1936. (3) Howd, Cloice R.: Industrial relations in the West Coast 
lumber industry; U. S. Bureau Labor Statistics Bui. 349 (Misc. 
series); vi, 120 pp.; Washington, 1924. (4) Jensen, Vernon H.: 
Lumber and labor; x, 314 pp.; New York, 1945. (5) Keezer, 
Dexter M.: The Douglas fir lumber industry; U. S. Council 
Nat'l Defense, Advisory Commission, 98 pp.; Washington, 1941. 
(6) Kerr, Clark: Collective bargaining on the Pacific Coast; 
Monthly Labor Review 64, 4, pp. 650-674; 1947. (7) Mittelman, 
Edward B.: The gyppo system; Jour. Political Economy 31, 9, 
pp. 840-851; 1923. (8) U. S. Nat'l Labor Relations Board, In- 
dustrial Analysis Branch: Price of board as a subject for collec- 
tive bargaining in the lumber industry; 19 pp., typewritten; 
Washington, 1948. (9) Resner, Herbert A.: Trees and men; State 
Wash. Works Progress Administration, 4, 133, 22 pp.; Seattle, 
2nd ed., 1938. (10) Tanner, Louise: Industrial relations in the 
logging camps of the Northwest; Reed College, M.A. thesis, 
135 pp., typewritten; Portland, Ore., 1938. (11) Todes, Charlotte: 
Labor and lumber; 208 pp.; New York, 1931. (12) U. S. Dept. 
Labor, Bureau Labor Statistics: Labor situation in western log- 
ging camps and sawmills; Monthly Labor Review 55, 6, pp. 1125- 
1133; 1942. (13) U. S. Dept. Labor, Bureau Labor Statistics: 
Injuries and accident causes in the pulpwood-logging industry, 
1943 and 1944; Bureau Labor Statistics Bui. 924; 26 pp.; Wash- 
ington, 1947. (14) U. S. Dept. Labor, Division Labor Standards: 
Supplemental investigations of the logging and sawmilling in- 
dustries; a report on occupational hazards to young workers; 
U. S. Dept. Labor report 4C; 39 pp.; Washington, 1948. (15) 
Vicary, James M.: Labor, management, and food; Harvard Bus- 
iness Review 26, 3, pp. 305-312; 1948. (16) Harbison, Frederick 
H., and Robert Dubin: Patterns of union-management relations, 
United Automobile Workers; ix, 229 pp.; Chicago, 1947. 

CAPITAL 

Because the act of conservation is essentially an act of saving, 
the study of capital as an agent of forest production is basic both 
to an understanding of the forest economy and to the adoption 
of sound conservation policies. 

Forest capital has some peculiar economic properties, men- 



150 RESEARCH IN THE ECONOMICS OF FORESTRY 

tioned in Chapter I, which can best be considered from the 
standpoint of the individual enterprise. Accordingly, for a com- 
plete picture of the role of capital in the forest economy, reference 
must be made to Chapters IV and V, particularly topics 42b, 
58, 59a, and 61 a. The following statements consider the effects 
of capital in the forest economy as a whole. 

25. THE CAPITAL MARKET IN RELATION TO THE FOREST ECONOMY AT 

LARGE 

To examine the supply of capital available to forest and forest- 
industry enterprise in an area, to appraise the effects of these 
supply factors on forest management and forest industry, and to 
determine whether existing capital institutions are effective agen- 
cies for implementing social objectives for forest and forest-in- 
dustry investment. Capital supply involves not only quantities 
of capital funds but also rates of interest at which funds become 
available for forest investment. 

One line of research under this topic may be directed at estab- 
lishing the relation, in the case of small forest owners and oper- 
ators, between forest conservation — generally, the dearth of it — 
and capital position. To what extent are destructive practices 
followed by these individuals because (a) their incomes are low 
relative to what would be required for conservative operations, 
(b) their access to the capital market is poor (rates of interest 
high), or (c) their rates of time preference are high, and their need 
great for keeping a very large fraction of their resources in highly 
liquid form? Light is thrown on numerous aspects of capital- 
market research in topic 26, below. 

26. NEEDS AND OPPORTUNITIES FOR FOREST CREDIT— M. R. Benedict 

Purpose. To study the capital structure of forest enterprise. 
To appraise the credit facilities currently available to forest enter- 
prise, and to analyze the effects of current methods of finance, 
and of alternative methods, on its stability, productiveness, and 
profitability. To analyze the needs of forest enterprise with respect 
to types and terms of credit and organization of credit agencies, 
both private and public. 

Scope. Forest enterprise embraces not only forest-land owner- 
ship and timber growing, but also logging and milling operations, 
transportation incidental thereto, and wholesaling and retailing. 
It involves private investments of many billions of dollars and a 
large public investment as well. Its financing is thus of wide 
interest. 



AGENTS OF PRODUCTION 151 

Particularly for forest ownership and timber growing, financing 
presents problems that differ from those of other industries. Here 
also financial arrangements are least well understood, least well 
adjusted to the needs of society, and offer most promise of im- 
provement. Emphasis may well be given, at least in the early 
years of forest-credit research, to research in the financing of these 
phases of forest enterprise. 

Topic 44 outlines an approach to the study of insurance against 
risk in forest enterprise. There are, however, risks which do not 
lend themselves to insurance techniques, but which are important 
elements in the problem of making adequate credit available at 
suitable rates of interest. Among these are types of loss in which 
the amount of damage is exceedingly difficult to measure, as for 
example, losses from insect damage or wind storms. More im- 
portant in this category, however, is variation in price of the 
product from period to period as a result of business fluctuations. 
This is probably no more significant in forestry than in many 
other types of business, and may be less so since timberlands can 
be left unharvested in periods of depression. If credit arrangements 
are sufficiently flexible, suitable adjustments can be made. Never- 
theless, this realm of uninsurable risks constitutes an important 
unexplored phase of forest economics which has a bearing on the 
availability of credit and the extent to which it is used. 

Generally speaking, forest-credit studies will have orientation 
in two directions: 

1. To firms engaged in the business. Are they able to obtain 
adequate financing? Is the cost as low as it could be? Are the 
terms such as to contribute to the stability and prosperity of the 
individual firms, or do they constitute risks of financial disaster in 
times of depression that could be eliminated or lessened if the 
credit structure and terms were different? 

"Adequate" financing theoretically is financing such that any 
larger investment would not pay its cost. So far as financing and 
operation are wholly on a private basis, this means availability 
of enough capital so that a larger investment would not increase 
returns by more than the cost at the interest rates and terms pre- 
vailing. Investments in forest enterprise may, however, and fre- 
quently do, result in additional noncash increments of value to the 
public which are genuine though not in the form of money income. 
Thus, from a social point of view, adequate financing may mean 
larger investments than those implied above. Such additional 
investment cannot be made possible except through public sub- 
sidy in the form of grants or of interest rates maintained at levels 



152 RESEARCH IN THE ECONOMICS OF FORESTRY 

below those of the free market. Institutional restrictions, such as 
legal prohibitions against loans on forest lands and the absence of 
suitable channels for getting capital into forestry, tend to keep 
interest rates high and to prevent investment on a scale that 
would be appropriate and economically justified if the capital 
market were more fluid. The identification of situations of this 
kind and the devising of means for correcting them constitute a 
major phase of research on forest credit. However, the researcher 
should not overlook the fact that in forestry, as in farming, there 
may be a tendency to use less credit than would be feasible and 
profitable even under the existing institutional structure. 

It will usually be difficult to determine the appropriate amount 
of investment except in very rough terms. For logging and milling 
firms, inadequate capitalization may take the form of inability 
to replace obsolete equipment rather than inadequate amounts of 
the types already in use. For timber growing, adequate capitaliza- 
tion may imply extensive reorganization of ownership units and 
selling or harvesting practices. Full exploration of these aspects 
of the problem will require silvicultural and engineering studies 
as well as those relating specifically to financial organization and 
practices. 

2. To the public interest. This often will differ from the interest 
of private firms. A program of rapid depletion may be the most 
profitable in some situations, and the credit and financial arrange- 
ments in use may be well suited to that procedure. At the same 
time the broad interests of the public may make desirable a 
revised credit and financing program that will create incentives 
for reblocking of lands, the institution of sustained-yield practices, 
and more permanent structures and communities. Furthermore, 
the forest enterprise is especially well suited to absorb public 
investment in times when deficit financing is desirable in stabiliz- 
ing the economy as a whole. Thus the possible uses of forest in- 
vestment as a countercyclical influence merit further study. 

Studies of the whole forest-credit problem obviously cannot be 
undertaken as a single project, for they cover too wide and diverse 
a field. They need to be divided regionally and topically. In the 
discussion to follow, a topical approach is used. It is assumed, 
however, that the study of any topic will be regional — that is, 
within areas more or less uniform in respect to the major factors 
to be studied. 

Credit for growing timber : large holdings. A first step will be 
to ascertain and interpret the methods of financing now in use: 



AGENTS OF PRODUCTION 153 

What are they: equity financing, sale of bonds, bank loans, mort- 
gages? What are the rates of interest and the terms? How did these 
methods of financing develop? What are the resulting problems? 
Are there institutional barriers, such as legal limitations on banks 
or insurance companies, which prevent the free flow of loan 
capital into forestry? From the private viewpoint, does the situ- 
ation in respect to rates of interest, loan terms, and availability 
of credit place forest operators in an unfavorable position as com- 
pared to entrepreneurs in other lines of business? From the public 
viewpoint, do present methods of financing favor destructive 
forest management or militate against full use of resources? In 
investigating these questions, published data cannot be relied 
upon to any great extent, since they do not exist. 

A second step will be to classify the holdings and select for 
study one or more in each significant group. For areas where large 
holdings predominate, it will be well to start by mapping, listing, 
and generally describing all such holdings, or at least the major 
ones. The classification of the holdings may, for example, relate 
to type of timber, accessibility, or type of forest enterprise, 
whether vertically integrated, horizontally integrated, or non- 
integrated. The credit problems of these different classes of oper- 
ators may be quite different. The holdings selected will be de- 
termined to some extent by the willingness of their owners to 
cooperate, even though this may cause some departure from an 
ideal sample. It will be desirable to gain at an early stage of the 
study the interest and cooperation of the regional lumbermen's 
association and the public agencies concerned, and to consult with 
committees appointed by them. Such committees can help not 
only in clarifying objectives and improving study plans, but also 
in securing cooperation and in opening the way for obtaining 
needed data. 

A third step will consist of intensive case studies of the selected 
holdings. Here it will be desirable to obtain information not only 
on existing financial structure, but on past history as well. Trends 
may be important in identifying emerging problems. In some 
situations it may be desirable to approach each case as an entirely 
separate study. In that event, however, the separate studies 
should be viewed as parts of a larger whole concerning which 
significant generalizations will be made. The research should look 
to uncovering useful, broadly applicable information. It may do 
this either by discovering conditions and principles that run 
through the industry and thus are valuable in meeting industry- 



154 RESEARCH IN THE ECONOMICS OF FORESTRY 

wide problems or determining public policy, or by bringing out 
differences between firms that can lead to improvement of the less 
efficient ones. 

A final step is to consider alternative possibilities for amelior- 
ating the problems encountered. Can corporate structure and 
policies be improved from the standpoint of private holders? 
Is there need for physical regrouping of holdings into larger or 
smaller private units or government forests? What is the pos- 
sibility of improving the types of private loans — terms, interest 
rates, or both? What are the possibilities of wider distribution of 
equity financing through modifications in respect to types of 
stock, dividend policies, size of corporate units, or other matters? 
What are the possibilities, limitations, advantages, and disad- 
vantages of a publicly sponsored long-term forest-credit agency? 
What are the possibilities, advantages, and disadvantages of grad- 
ual acquisition of the basic resource by government? 

Credit for growing timber : small holdings. Even in an area 
dominated by large holdings and operations, forest-credit research 
cannot ignore the part to be played by small holders. Here credit 
research will build on the analysis of the impact of small-holder 
activities and problems on the forest situation of the area. These 
holders may have more pressing problems both in equity financing 
and in credit than do the larger firms. The research will need to 
take account both of their problems as entrepreneurs and of the 
possibility of devising credit arrangements that will create in- 
centives for them either to become a part of a constructive over-all 
program or accept elimination. A survey approach will be best in 
most cases. 

For regions where most of the holdings are small, effective 
research will invariably require the use of survey methods. Some 
intensive case studies may be useful, but this type of research will 
not be so important as in the areas of large holdings. Individual 
owners will be helped most by studies that bring out differences 
in their procedures and results, while public policy will best be 
served by generalizations that describe and analyze conditions 
pertaining to sizable groups of holdings. 

Two types of small holdings will here be considered separately: 
farm woodlands and small nonfarm holdings. 

i. Farm woodlands. Here the analytical techniques will be 
substantially the same as those used in farm -management an- 
alyses. The acreage actually or potentially in forest can be treated 
as one of a number of enterprises making up the farm business 



AGENTS OF PRODUCTION 155 

(43). Emphasis will be on the alternative returns, including special 
values not directly measurable in terms of money, from using such 
lands as a continuing forest resource, cutting off the timber and 
converting the land to crop or pasture use, or leaving it without 
specific management. Forest-credit research will center around 
the need, or lack of it, for special credit arrangements to facilitate 
the development of forestry as a continuing phase of the farm 
business. 

Analysis will follow these lines: (a) Is the problem primarily one 
of need for more or different credit, or does it consist in lack of 
information, inadequate incentives, or absence of physical facili- 
ties for marketing? (b) What problems arise in financing forest 
production as a part of the farm business through the regular 
long-term credit agencies serving agriculture? For example, is 
the timing of payments under the usual types of farm credit suited 
to forest management, or are special time schedules required? 
(c) If the latter, does an appropriate time schedule for loans and 
repayments require a special type of credit instrument, such as a 
specially devised second mortgage, or can it be handled satis- 
factorily within the general credit arrangements for the farm as a 
whole? (d) In general, what changes are needed in loan terms, 
credit policies, and methods of supervision to make customary 
sources of farm credit suitable for forest operations on farms? 
(e) What special need and prospective volume of business exists 
for a specialized government forest credit agency? If developed, 
what form should it take and under what congressional and ad- 
ministrative directives should it operate? (f) Are there public or 
noncash private returns which warrant some subsidization of 
forest-management programs, and may subsidy be handled in 
the same package with credit? 

These studies, made by the survey procedure, will be essentially 
rough case studies. But unlike the intensive case studies suitable 
for large operators, the aim should be mainly to provide a basis 
for generalizations. A good sample of holdings, well designed for 
representativeness and sufficiently large to reflect the principal 
types of problem encountered, provides the only practical ap- 
proach to analysis of the relationships that will be encountered. 
Each farm presents its own individual problems, and only by 
analyzing a considerable number of cases is it possible to attempt 
classification and generalization. 

2. Small nonfarm holdings. Many such parcels are owned by 
nonresidents and are held speculatively. Often they are either 



156 RESEARCH IN THE ECONOMICS OF FORESTRY 

completely neglected or are cared for at minimum levels of knowl- 
edge, interest, and direct contact of the owners. The first approach, 
then, will almost certainly be to find ways to provide effective 
management and facilities for harvesting and selling the product. 
One possibility may be to combine holdings through sale or 
joint operation. 

When procedures for improving management are worked out, 
the question of need or lack of need for special credit facilities will 
arise. If such needs become apparent on a significant scale, they 
will probably be different from those of farm woodland owners. 
They may, for example, involve loans to corporations or coopera- 
tives for purchase, leasing, or contractual management of holdings, 
or loans to individual owners to enable them to discontinue de- 
structive practices. 

Finally, there will be the question of the agencies best suited to 
furnish the needed credit. Can existing agencies do the job? Can 
credit be supplied to individual owners through existing agricul- 
tural credit agencies, with broadened legislative authorization? 
In the case of corporate ventures, will these have to be financed 
through private banks or special forest-credit agencies? 

Credit for logging, milling, wholesaling, and retailing. In the 
processing and marketing phases of forest enterprise, credit prob- 
lems are similar to those in most other processing and distributing 
activities. Research in this field should focus mainly on two 
phases: (a) the credit aspects of stockpiling and of stabilizing 
operations and (b) the relation of credit to constructive versus 
destructive forest operations. 

a. Much forest enterprise is notably unstable in its use of labor 
and equipment. Opportunities may exist for significant private 
and public economies through evening out the peaks and valleys 
of activity by use of credit arrangements. Only careful and realistic 
analysis, however, can bring out the facts. It is evident that the 
longer-term variations in lumbering activity, for example, are 
closely related to cycles in building activity. These are almost 
certainly not amenable to correction through any special type of 
forest credit. On the other hand, the seasonal variability in forest 
enterprise may in some areas be amenable to improvement 
through credit. Studies in this phase of the credit problem will 
have to take account of the type of forest practice used. The effort 
to work out stabilizing credit policies will almost certainly be more 
promising where operations are on a sustained-yield basis. On the 
other hand, risks to the lending agency may actually be less 
where sustained-yield practices are not used. Little information 



AGENTS OF PRODUCTION 1 57 

exists in regard to this problem, and research is needed. The 
problem is somewhat related to that of more general types of risk, 
such as those discussed in topic 44. 

b. Conceivably, credit can be conditioned on the use of 
approved forest practices. This approach is not likely to be 
adopted by private lending institutions. Its practicability, there- 
fore, hinges first on creating special credit institutions designed to 
foster operating practices in keeping with the public interest, and 
second, on providing credit on sufficiently attractive terms to 
make it desirable for operators to use such credit in spite of the 
more rigorous conditions attached to it. Only exploration of actual 
operations can bring out the possibilities or impracticability of 
such an approach. If the initial phases of the study indicate that 
the approach has practical possibilities, the second phase will 
logically deal with types of institutional arrangements needed. 
In all probability this implies some type of federally sponsored or 
owned intermediate credit bank specifically designed to finance 
forest operations. 

Many of the larger forest enterprises are vertically integrated, 
and include both timber production and timber harvesting, pos- 
sibly with wholesaling and retailing activities as well (59). A 
constructive analysis of the credit problem will need to include 
situations of this kind, and should contemplate credit arrange- 
ments that will make such integration possible and efficient where- 
ever it is in keeping with the public interest. This does not mean 
that all the types of credit implied should necessarily be available 
through one credit agency. The approach should, however, con- 
template coordinated action on the part of the credit suppliers. 

Studies of processing credit should consider needs for credit to 
reconvert mills to types and sizes appropriate to rationalized 
plans of operation as well as credit needs associated with sustained- 
yield operation. Where analysis indicates possibilities of gain 
through increased mechanization, the problem of kinds, amounts, 
and sources of credit for such modernization should be included in 
the study. 

27. THE RATE OF INTEREST IN FORESTRY AND FOREST INDU STRY 

To determine the rates of interest applicable to capital invest- 
ments in forestry and forest industry, and to analyze the factors 
affecting these rates as a guide to choosing appropriate rates for 
forest valuation, cost-benefit analysis, forest management, and 
other purposes. 

Because of the long production period involved in a permanent 



158 RESEARCH IN THE ECONOMICS OF FORESTRY 

forest operation, the rate of interest applicable to forest invest- 
ments is particularly critical in determining the outcome of many 
types of economic analysis. For example, a small change in the 
rate of discount applied to prospective income may have a great 
effect on apparent present worth. Similarly, when alternative 
time patterns of income derivable from a forest are compared, the 
results may differ sharply depending on the interest rate used. 
Accordingly, economic evaluations of forestry alternatives may 
require a more accurate knowledge of interest rates than is neces- 
sary in other fields. Such information is essential for both public 
and private evaluations. 

Studies under this topic include both those which determine the 
rate of long-time earnings on specified classes of forest investment 
and those which examine the rates at which private or public 
borrowers can obtain funds for long-term forest investment. 
Other studies will analyze the factors affecting rates of interest, 
such as the marginal efficiency of capital, the risks and uncertain- 
ties of forest investment, and the financial incentives, over and 
above earnings and risk allowances, which may be needed to call 
forth funds for forest purposes. 

Many aspects of topic 26, above, will be pertinent to these 
problems. Other closely related studies are those dealing with 
insurance (44) and the impact of taxation on forest enterprises 

ENTREPRENEURSHIP 

Much of Chapters IV and V, dealing with the combination of 
the agents of production, is concerned with the entrepreneur and 
how he operates in effecting combinations. As in the case of 
capital, a full understanding of the role of the entrepreneur re- 
quires study of the matters considered in those chapters. The 
statements which follow emphasize the attributes of entrepre- 
neurship and the factors which condition its application to 
forestry, as background for the subsequent analysis of the en- 
trepreneur's relations to other agents of production in the exercise 
of his managerial functions. 

28. GOVERNMENTS AS FOREST ENTREPRENEURS— Robert J. M. Matteson 

Purpose. To describe the entrepreneurial activities of govern- 
mental agencies in the forest economy, to analyze the develop- 
ment and organization of such activities, and to appraise the 
social costs and returns associated with such activities. 



AGENTS OF PRODUCTION 159 

Setting. The study is part of the general analysis of how an 
economy determines the direction, intensiveness, and timing of its 
forest-resources utilization. The study sheds light on the relative 
effectiveness of governments and private businessmen as forest 
entrepreneurs from the standpoint of total social returns over long 
periods of time. Thus it could become a basis for recommendations 
concerning forest policy and administration and for broader think- 
ing about the general role of governments in economic develop- 
ment. 

Definitions. Entrepreneurial activities are those associated with 
deciding how capital and labor will be applied to resources, in this 
case forest land, and how resources will be used in satisfying de- 
mands. This study will be limited to entrepreneurial activities 
with respect to forest land over which governments have full 
control through ownership or lease. 

Social costs and returns are denned and their evaluation con- 
ceived as in topic 14. Thus, costs include both direct land manage- 
ment expenditures and possible deterrents to private economic 
development and opportunity as a result of public ownership. 
Similarly, returns encompass both direct governmental receipts 
from land management and broad public benefits from govern- 
mental timber, range, recreational, wildlife, and watershed pro- 
tection facilities. 

The analysis is concerned with all levels of government in this 
country. However, some of the governmental units require special 
treatment within the study or separately because of wide dif- 
ferences among them in their stewardship of forest land. Foreign 
experience is consulted occasionally for purposes of comparison. 

Matters to be considered. Some of the major factors to be 
described and analyzed are as follows: 

1. Entrepreneurial functions, agencies, purposes. With respect 
to functions, what emphasis is being given to the various under- 
takings associated with the protection of forest land; the manage- 
ment of that land for timber, recreation, and other products and 
services; and the general physical and legal development of the 
land? With respect to agencies, how are the public forest lands 
now distributed among various federal, state, and local organiza- 
tions? With respect to purposes, how do the public forest holdings 
differ as to dominant purpose: multiple-use forests, wildlife 
refuges, forest preserves, and other types? Attention should be 
directed to political and economic factors influencing public of- 
ficials in allocating the forest and other resources in their charge. 



160 RESEARCH IN THE ECONOMICS OF FORESTRY 

i. Historical development. The analysis should be built around 
the major influences that have shaped the history of public forest 
management rather than around a detailed chronology of the 
movement. The effect of these influences, working within a federal 
structure of government and a free enterprise economy, has been 
conditioned by the absence of a unified, long-term governmental 
plan for managing the nation's forests. The present diversity of 
public forest holdings in such matters as geographic distribution, 
quality of timber, nature of control, and major purposes of man- 
agement, as well as the substantial magnitude of the holdings, is 
the result of these influences, most of which have taken clear 
shape only within the last fifty to sixty years. 

Some of the major influences on the development of public 
forest entrepreneurship may be found to be (a) federal ownership 
of vast areas of rural land; (b) the public-ownership orientation 
acquired by the forest-conservation movement around the turn 
of the century under the leadership of Carl Schurz, B. E. Fernow, 
Gifford Pinchot, and others; (c) the struggle of "interests," both 
inside and outside the ranks of conservationists, to shape govern- 
mental policies with respect to various forest values, including 
range and recreation as well as timber; (d) the large-scale transfers 
of denuded forest lands into state and local ownership in the 
1920's as a result of tax delinquency; (e) the impetus given to 
public forest development in the 1930^ by depression-inspired 
programs such as the Civilian Conservation Corps and by the 
purchase of submarginal farm lands; and (f) the growing pressure 
on private timber supplies and consequent enlargement in the 
volume of timber harvested from public forests. 

3. Administrative structure. The organizational arrangements 
for the management of public forest lands are products of the 
historical development of governmental forest ownership. They 
are also products of the physical attributes of forests — e.g., their 
spatial distribution, their rate of growth, and the variety of their 
functions — and of the whole governmental system of which public 
forestry is a part. What are the chief characteristics of the or- 
ganizational arrangements? What has been the effect of these 
arrangements on the exercise of the governmental entrepreneurial 
function? The forest-managing agencies involved in these ques- 
tions include the Forest Service and Soil Conservation Service 
in the U. S. Department of Agriculture; the Bureau of Land 
Management, Bureau of Indian Affairs, National Park Service, 
and Fish and Wildlife Service in the U. S. Department of the 



AGENTS OF PRODUCTION 161 

Interior; limited parts of the Tennessee Valley Authority and the 
Department of National Defense; forestry bureaus and other 
land-managing agencies of the states; and various units of local 
governments. 

Some of the characteristics of government entrepreneurial or- 
ganization that would be brought into clear focus in this phase of 
the study are: (a) the limitations placed on the discretion of public 
forest administrators by legislative control and by the general 
managerial procedures applicable within government; (b) the large 
number and wide variety of the federal, state, and local agencies 
charged with responsibility for managing public forest lands; 
(c) the handling of public forest entrepreneurship through regular 
governmental departments and appropriations rather than 
through special public corporations; (d) the network of formal and 
informal relationships, partly conflicting and partly cooperative, 
among the agencies administering government forests; (e) the 
important role of local and regional field officers in both formula- 
tion and execution of decisions respecting forest development and 
use; and (f) the basic unity of outlook and training among the 
professional foresters working in the forest-management agencies. 

4. Costs. The analysis of costs should have a major place in the 
study. While some of the indirect and intangible elements of these 
costs cannot be quantified, satisfactory data can be built up on 
direct expenditures and employment on public forest land, now 
totaling annually between 80 and 85 million dollars and between 
20 and 22 thousand man-years, based on data compiled by the 
Institute of Public Administration. These data would need an- 
alysis both by agencies and by activities, this analysis to include 
comparisons between the jobs in acreage terms and in terms of the 
amount of money and manpower applied to them. It would also 
be desirable to have information on the division of employment 
between field and headquarters and on the division of expenditures 
between capital outlay and current expense, between wages and 
salaries and all other expenses, and between general administra- 
tion and operations. In setting up the cost data, basic decisions 
would be needed with respect to the method of handling (a) 
nonforest lands managed in conjunction with forest lands, and 
(b) protection work, such as fire control on state forests, carried 
out on governmental lands only as part of general protection 
programs operating across the board on private and public lands. 

5. Benefits. There are substantial pieces of evidence that can 
be used in making an informed judgment about benefits from 



1 62 RESEARCH IN THE ECONOMICS OF FORESTRY 

public forest management. Data on cash receipts by governments 
from sales of the various products and services of public forest 
lands, estimated at between 45 million and 50 million dollars in 
fiscal year 1948, make up one set of pertinent facts. Information on 
program accomplishments — trees planted, acres of land protected, 
miles of road completed, etc. — comprises another. A third is to 
be found in nonforest expenditures or values which are dependent 
on the management of public forest land — for example, expendi- 
tures of sportsmen to get themselves ready to hunt or fish in 
public forests, capital invested in water supply which would be- 
come silt-clogged without watershed protection by the forests, 
and employment opportunities in communities with industries 
drawing their raw materials from government stumpage. For- 
tunately, much of such evidence involves benefits flowing pri- 
marily from particular public-forest activities — e.g., range manage- 
ment or wildlife management — hence makes possible reasonable 
judgments about returns from separate aspects of governmental 
forest management as well as from the program as a whole. 

6. Prices and related considerations. Price policies respecting 
goods and services from governmental forest enterprises have a 
major effect on the distribution of costs and benefits, and conse- 
quently merit substantial attention. While pricing systems are to 
some extent determined by the characteristics of the goods and 
services — for example, watershed protection does not lend itself 
to individual sales as does stumpage — these systems and the 
prices established under them are also the products of political 
pressures, financial factors, and philosophical convictions about 
who should pay for what. The researcher should recognize these 
influences and should consider the impact that the price structure 
has upon the net incomes of various groups from government ally 
owned forest lands. In addition, it is important to appraise the 
effects of public price policies, particularly for stumpage and 
forage, on general business conditions within forest-using com- 
munities and on private management of forest resources. 

A number of nonprice considerations are closely related to price 
policies in shaping the use of public forests; hence they fall 
within the purview of this study. For example, there are questions 
of timing, place, and volume respecting the opening up of timber, 
forage, and other resources to private purchase or hire. Also 
important are various conditions of sale such as provisos con- 
cerning rights of way, hazard reduction, stand improvement, and 
sanitation in cutting contracts. Furthermore, the analysis should 



AGENTS OF PRODUCTION 1 63 

encompass the peculiar long-term arrangements and geographic 
restrictions involved in cooperative and federal units established 
under the Sustained Yield Forest Management Act of 1944. 

The researcher must keep his vision broad even while ac- 
quainting himself in detail with the price and other circumstances 
of the private use of public resources. He must note that the 
national forests, the Indian forests, the Oregon and California 
revested grant lands, the state forests, and the other public 
holdings differ from one another in their policies and procedures. 
In comparing the pricing and selling arrangements of government 
with those of private business, he must remember that prices and 
sales are matters of life and death for private companies but not 
for governmental agencies, that the pressure which private com- 
panies face in tax and interest charges does not have a full counter- 
part in public management, and that governmental entrepreneurs 
can direct their price and sale decisions toward objectives larger 
than the welfare of particular concerns. Also, he should keep in 
mind such fundamental questions as possible relationships be- 
tween governmental timber sale policies and business cycle 
fluctuations in private forestry. 

7. Comparison of costs and benefits. The heart of the study of 
governments as forest entrepreneurs lies in comparing costs and 
benefits. Since no mathematical method now available can en- 
compass all the pertinent factors, this comparison must ulti- 
mately be based on the good judgment of the investigator. In 
making this judgment, the researcher synthesizes his facts and 
analysis into an informed opinion which may shape future forest 
policy through its influence on public thinking and on the decisions 
of legislators and administrators. 

a. Quantifiable and nonquantifiable values. Weighing the quan- 
titative evidence of returns against costs expressed in dollars or 
man-years, though important as a guide to sound judgment, does 
not by itself give a full or accurate picture of social gain versus 
social expense. A balancing of dollar receipts from sales against 
dollar expenditures is informative, but the significance of this 
balancing is limited by the facts that there are many forest values 
which either are not or cannot be subject to sale and that sale 
price is indicative of worth to individual purchasers but not to 
society. Comparisons of expenditures and employment with phys- 
ical accomplishments are helpful in giving concrete expression to 
what governments buy with varying amounts of dollars and 
manpower, but the worth of these accomplishments to people is in 



164 RESEARCH IN THE ECONOMICS OF FORESTRY 

the satisfactions derived from their use rather than in the things 
themselves. Again, weighing the measurable values dependent on 
public forests — for example, expenditures for recreation in forest 
parks — against the costs of managing these areas is worth while 
for what it shows about the great volume of wealth and income 
based to some extent on activities undertaken on governmental 
forest lands, but the meaning of this comparison is conditioned by 
the fact that the forest-dependent values are also dependent on 
many other things. Furthermore, on the side of costs, it needs to 
be borne in mind that direct expenditures and employment on 
public forest management are not the whole social outlay on this 
function, for the value of the things to which these productive 
forces might have been applied, had they not gone to work on 
government forests, has to be considered, as do the philosophical 
implications of public ownership in a free-enterprise society. In 
short, the researcher must consider both quantifiable and non- 
quantifiable values as valid evidence in reaching his conclusions 
about the relationships of costs and benefits. 

b. The time element. It is not enough to judge the balance be- 
tween costs and benefits in any particular year, for such an 
appraisal would neglect significant differences in this balance for 
different periods of time. The slowness of forest growth, which in 
many instances makes for a long gap between the application of 
practices and the realization of the ultimate results therefrom, 
means that the returns from public forests for any short period 
are only partly related to the work done on the forests during that 
period. 

c. Incidence of costs and benefits. The researcher must look at 
the input-output relationships for specific programs and groups 
as well as for the economy as a whole. For instance, it is likely 
that some parts of the country — for example, the Northeast with 
its relatively high share of the nation's tax burden and its rela- 
tively small acreage of public forest land — pay more for benefits 
received than do others. Again, it is probable, considering the 
extent to which the administration of public forests is financed 
out of general revenues, that some forest users — such as hunters, 
recreationists, stockmen, and lumbermen — receive substantially 
more net gain from governmental forest management than do the 
many individuals who rarely make any direct use of the public 
forests, even remembering that some of the direct forest users 
make payments for specific services from the forests in addition 
to what they contribute through taxation. 



AGENTS OF PRODUCTION 165 

d. Resource allocation and maximum returns. In comparing the 
costs of public forests with the benefits from them, the study is at 
bottom concerned with the extent to which governmental en- 
trepreneurship over forest land leads toward maximum net social 
returns from that land and the capital and labor applied to it. 
While the expression of human wants through political channels, 
as with their expression through economic channels, probably 
tends in the long run in a democratic society to shift the allocation 
of resources toward maximum net returns, the actual management 
of governmentally owned resources, like the management of pri- 
vate resources, is very likely at any particular moment to be short 
of this optimum. The deficiency in resource allocation may be 
that too much of a given total of land, labor, and capital for 
forest-land management is being devoted to one activity and too 
little to another, considering the relative returns from each. On 
the other hand, the weakness may be that too much or too little 
labor and capital is available for general application to public 
forests, in view of the possible gain therefrom, as compared to 
that available for other governmental programs or for private 
forest management or for the private economy in general. 

8. Public versus private ownership. The question of managing 
forests publicly or privately is closely related to the comparison 
between the costs and benefits of public ownership. While a full 
answer to this question is immensely complicated, since it involves 
a thorough knowledge of social expense and returns in private as 
well as public forestry and of the relationships between these two 
methods of management, the issue is of such importance that it is 
incumbent on the researcher to give it serious consideration, 
even if his findings must be stated in tentative terms. Such con- 
sideration may suggest that too much or too little forest land is in 
public ownership from the viewpoint of reaping maximum net 
social benefits from the productive forces devoted to forestry.* 

One line along which to approach this issue is that of analyzing 
the general advantages and disadvantages of public forest man- 

* Because forest entrepreneurship varies immensely among the different 
public agencies and likewise among private owners, a comparison between 
public and private entrepreneurship in general may be carried only to a point. 
Beyond this, it is necessary to consider specific classes of public and private 
owners. For the latter, it may further be necessary to assume the degree of 
public control under which they operate. 

Much of the discussion in this section relates primarily to the larger and 
more stable units of government, and also to the more conservation-minded 
classes of private owners. — Eds. 



1 66 RESEARCH IN THE ECONOMICS OF FORESTRY 

agement when compared with private. The advantages probably 
include (a) more comprehensive objectives, (b) greater financial 
resources, (c) a longer view of things, and (d) larger areas of 
operation. Some of the probable disadvantages are (a) the im- 
portance of political considerations, (b) the rigidities in adminis- 
trative structures and procedures, (c) the impact of bureaucracy 
on personnel, and (d) the relative weakness of pressures toward 
efficient operations. In connection with these points, the investi- 
gator might well consider the possible outlines of a satisfactory 
scheme of accounting for the multiple facets of governmental 
forest management and the possible utility of the public corpor- 
ation as a device for handling forest lands. 

Another line of analysis with respect to public versus private 
ownership entails the differences in forest lands with respect to 
their suitability for public management. Forest areas which are 
of major importance for watershed protection or recreational use 
and which can grow commercial timber at only a very slow rate or 
not at all are unlikely to receive any management unless they are 
held by government. On the other hand, lands which are in good 
condition as to growing stock and which can be administered so 
as to produce a continuing substantial volume of merchantable 
trees at relatively low cost can be well handled by private entre- 
preneurs. Between these two extremes are large acreages of moder- 
ately productive forests which probably best serve the public 
interest if they are partly in public and partly in private hands. 
For this last category, factors such as accessibility, degree of 
denudation, interspersion with nonforest lands, and availability 
of local outlets for forest products must be considered in deter- 
mining the optimum ownership for particular tracts. The reader 
is also referred to topic jjf. 

In contrasting public and private ownership, the researcher 
must not overlook the intermingling and interdependence of the 
two tenure systems. Furthermore, in weighing one alternative 
against the other, he must keep in mind the nation's general 
philosophical commitment to private enterprise as well as the 
desirability of getting maximum production from the forests. 

Procedure. The researcher should begin by acquainting himself 
with the broad outlines of public action in this field. This can be 
done initially by examining the pertinent general literature, in- 
cluding annual reports of major federal and state land-manage- 
ment agencies, articles in the Journal of Forestry and other peri- 
odicals, and public ownership sections in the various major works 



AGENTS OF PRODUCTION 1 67 

dealing with forest policy. Examination of the basic literature 
should be supplemented rather early by a few exploratory con- 
versations with key officials in governmental forestry agencies 
and with other persons well informed on the place of public 
ownership in general forest policy. 

On the basis of the introductory readings and interviews, a 
tentative outline and a plan of work should be developed. This 
should be followed by a thorough analysis of specifically what 
statistical information will be needed and of the methods of ob- 
taining it. Because of the many different sources of data on such 
matters as expenditures, employment, acreage, receipts, prices, 
and accomplishments, it will be necessary to work out standard 
definitions, forms, instructions, and collating procedures. 

Most of the data, both statistical and otherwise, will have to be 
obtained directly from the forest-managing agencies. This will 
entail a considerable number of interviews and a substantial 
volume of correspondence with officials in different types of 
federal, state, and local agencies administering governmental 
forest lands. Moreover, the investigator should contact private 
individuals and organizations in a position to verify the govern- 
mentally supplied facts, to offer informed opinions about public 
forest management, and to supply comparative data on private 
forestry operations. 

As indicated in the sections on costs and benefits, the analysis 
of the data will involve both statistical comparisons and the ex- 
ercise of judgment. The information thus weighed will probably 
be both wider and more detailed than that finally presented in the 
report. In comparing the data of various agencies and activities — 
for example, with respect to costs per acre of land — the investi- 
gator will need constantly to keep in mind the extent to which 
differences are reflections of different objectives or different natural 
forest conditions rather than of relative degrees of efficiency. 

Guideposts. General experience in research regarding forest 
policy and administration suggests a number of issues which the 
investigator of governments as forest entrepreneurs will have to 
meet. 

First, the study will require a considerable length of time, 
perhaps two full years or more, and a considerable amount of 
travel. 

Second, a multitude of scattered facts will have to be winnowed 
and integrated with great care. 

Third, direct personal contacts with public forest management 



1 68 RESEARCH IN THE ECONOMICS OF FORESTRY 

officials, after proper clearance, will generally produce better re- 
sults than working through central agencies such as budget or 
information offices. 

Fourth, to get a realistic picture of governmental forest entre- 
preneurship, particularly with respect to relationships among vari- 
ous activities and agencies, information obtained at headquarters 
will have to be rounded out with much attention to operations in 
the field. 

Fifth, considerable information will have to be pulled together 
with respect to the economics of private forestry, particularly as 
regards large industrial holdings with acreages comparable to some 
of the public forests, in building up a basis for appraising the 
effectiveness of governmental forest management. 

Sixth, disinterested verification of important facts is a difficult 
task, because interested parties — i.e., governmental forest agencies 
and private forest owners — are the only obvious sources of most 
of the data. 

References. Some of the specific major works dealing in whole 
or in part with this subject are: (i) U. S. Dept. Agriculture, 
Forest Service: A national plan for American forestry; 73rd Cong., 
1st Sess., Senate Doc. 12; 1677 pp. (2 vols.); Washington, 1933. 
(2) U. S. Dept. Interior: Forest conservation on lands adminis- 
tered by the Department of the Interior; 291 pp., processed; 
Washington, 1940. (3) U. S. Congress, Joint Committee on Fores- 
try: Forest lands of the United States; 77th Cong., 1st Sess., 
Senate Doc. 32; v, 44 pp.; Washington, 1941. (4) U. S. Dept. 
Agriculture, Forest Service: Forests and national prosperity: a 
reappraisal of the forest situation in the United States; U. S. 
Dept. Agr. Misc. Pub. 668; vii, 99 pp.; Washington, 1948. (5) 
Joint Committee on Forestry of the National Research Council 
and the Society of American Foresters : Problems and progress of 
forestry in the United States; v, 112 pp.; Washington, 1947. (6) 
Pinchot, Gifford: Breaking new ground; xvii, 522 pp.; New York, 
1947. (7) U. S. Dept. Agriculture: Trees, the yearbook of agricul- 
ture 1949; xiv, 944 pp.; Washington, 1949. (8) Gulick, Luther 
Halsey: American forest policy; 252 pp.; New York, 1951. The 
proceedings of the Society of American Foresters and of the 
American Forest Congress of 1946 also contain significant state- 
ments on publicly owned forest lands. 

Information on particular forest-management agencies and 
activities has to be sought largely in the annual reports and in- 
ternal working papers of the agencies. For example, with respect 
to the national forests, the yearly reports of the Chief of the 



AGENTS OF PRODUCTION 1 69 

Forest Service, including the statistical supplements, are impor- 
tant preliminary sources. In compiling data on expenditures and 
personnel, federal and state budget documents will be valuable; 
to a lesser extent so will the reports on state and local finance and 
employment compiled by the Governments Division of the 
U. S. Bureau of the Census. Transcripts of testimony given by 
forestry agencies before legislative committees — for example, the 
hearings before subcommittees of the House of Representatives 
on the appropriations bills for the Departments of Agriculture 
and Interior — contain much worth-while information, including a 
considerable amount pointed toward accomplishments and prob- 
lems. 

29. PRIVATE PERSONS AS FOREST ENTREPRENEURS 

To describe how private persons, or particular classes of them, 
fulfill forest-entrepreneurial functions, to learn how private forest 
entrepreneurs respond to various economic stimuli, and to evalu- 
ate the effectiveness of private persons as forest entrepreneurs in 
terms of (a) the efficiency of the individual firm and (b) maximiz- 
ing total net returns to the community. 

The most significant studies of this type are probably those 
directed at entrepreneurs who are concerned with the use of 
forest land and growing stock. Here the divergence between public 
and private points of view, so often emphasized in discussions of 
forest policy, is likely to appear most sharply. The study may be 
aimed at detecting the divergence, explaining why it exists, and 
designing economic measures to reduce it; or the study may in- 
volve comparisons of different classes of private forest entre- 
preneurs. The research will be concerned with the extent of private 
forest entrepreneurship in an area, with qualitative differences 
between different classes of entrepreneurs, with the manner and 
efficiency of forest-resource use under each class of entrepreneur, 
with explaining major entrepreneurial decisions such as those 
relating to forest investment or production, and with profits in 
forest business and the influence of profits on entrepreneurs' 
actions. 

The study will draw heavily on those in Chapters IV and V that 
are concerned with specific phases of entrepreneurial activity — 
e.g., topics 39, 41, 43, 48, 5#, and 61. 

Because the entrepreneur and the forest-land owner are fre- 
quently the same person, this research may in some of its phases 
overlap topic 37. 

An important study within this group concerns the effectiveness 



170 RESEARCH IN THE ECONOMICS OF FORESTRY 

of the farm entrepreneur and the farm organization in forest 
production and marketing. Farmers are frequently singled out for 
attention because they are the most numerous class of forest 
entrepreneurs in the United States, are among the less successful 
in this pursuit, and have long been the prime object of public 
educational and assistance programs in forestry. 

LAND USE 

The studies described in this section define, in effect, the eco- 
nomic concept of forest land. How has a given area of rural land, 
potentially subject to forest use, actually been used? How is it 
likely to be used in the future? Why? How should such an area be 
used in order to conform to economic objectives of maximum 
returns from the use of resources? The answers to these questions 
tell what is forest land and what is not. The studies are concerned 
with land in its relationship to the economy at large and with the 
significance of this relationship for the forest economy, particu- 
larly through its effect on the supply of forest land. They differ 
from the forest tenure studies of the following section in that they 
consider the interactions among all potential uses of land, al- 
though they too involve tenure where it is a significant deter- 
minant of land use. 

Topics jo and joa describe and explain land use. Topics 31 and 
jia measure actual and potential uses against the yardsticks of 
individual or group economic objectives. 

30. HISTORY AND PROSPECTIVE TRENDS OF RURAL LAND USE— H. E. Selby 

Purpose. To determine and describe the history of rural land 
use in an area and the prospective future trends, with special 
reference to forest land. 

The history and prospective trends of rural land use in an area, 
together with an understanding of the causal factors, provides an 
essential background for determining desirable land use and desir- 
able policies of forest-land management. In many areas various 
uses of forest land must be integrated with each other and with 
uses of nonforest land. 

Definitions and land-use categories. Rural land use here means 
use of an area of rural land surface by man to obtain goods and 
services that satisfy his wants. 

Various sorts of categories of rural land use may be recognized. 
First, there are the general categories, akin to land-cover classes, 
representing forestry broadly conceived and its major alternatives 



AGENTS OF PRODUCTION 171 

forest, open range, farm, residential, and so on. Second, there are 
the categories based upon specific products, which may be treated 
either as subclasses of the above or as an independent system: 
timber, recreation, watershed protection, wildlife, grazing, cul- 
tivated crops, pasture, residences, military activities, mining, high- 
ways, and so on. Third, there are all manner of subcategories and 
combined categories of land use, as suggested below. 

A land-use area is a designated area of land that is used differ- 
ently from adjoining areas. It may represent primarily a single 
use of land or multiple use. A multiple-use area may represent 
two or more uses of the same land, such as timber growing and 
watershed protection; or intermingled uses, such as timber grow- 
ing and grazing; or a convenient combination of two or more 
adjoining uses that do not warrant separate designation for the 
purposes of the study. 

The categories to use in a given study will depend on conditions 
in the study area and the use to be made of the results. In one 
study, it may be sufficient to include all intermingled areas of 
land used for timber growing and for farming in a single multiple- 
use category of " timber and farming"; in another, it may be 
necessary to differentiate the separate areas used in each way. 
The areas used exclusively in each way may be so small that 
delimitation is not feasible, but larger areas used predominantly 
for timber growing may be designated as "timber and farming," 
and areas used predominantly for farming as "farming and tim- 
ber." Frequently two different uses such as timber and grazing 
gradually merge together so that the land used exclusively in 
one way is separated from that used in the other way by a zone 
of intermingled use but with no definite lines of demarcation. 
Whether to designate each exclusive use and the intermingled use 
as separate categories and areas, or to combine the intermingled 
use with either or both of the exclusive uses in a multiple-use 
category, will depend on circumstances such as the relative im- 
portance of those land uses in the particular study, the acreages 
involved, and relationships to other uses. 

Usually more or less subdivision of the major land-use categories 
into subcategories will be desirable. For example, timber-growing 
may be divided into commercial and noncommercial, or into 
timber types; grazing, by season of use or by kind of livestock; 
farming, by type, such as livestock ranching and orcharding, or 
submarginal and supermarginal farming; recreational use, into 
picnic grounds, summer-home areas, hunting and fishing areas, 



172 RESEARCH IN THE ECONOMICS OF FORESTRY 

parks, and wildlife refuges. In some studies, combinations of 
land-use and land-cover categories may be used, such as division 
of grazing land into forest, brush, and open prairie types; or of 
farming land into cropland, pasture, and woodland. Subdivision 
of land used for timber growing, grazing, or farming into land- 
productivity grades may be indicated in some cases. Recognition 
of minor uses, such as use for highways, is not needed in most 
studies, but may be helpful in some. 

Relation to other studies. This study is closely related to the 
study of factors responsible for present use of land (joa) and to 
evaluation of alternative land uses (ji). Ordinarily the history 
of land use and factors responsible for it will be studied together, 
and these phases together will provide much of the basis for 
evaluation of alternative uses. Determination of prospective trends 
in use, if they are projected very far into the future, will neces- 
sarily involve analysis of influences that have affected past use 
and of the physical, social, and economic effects of different uses 
and changes in use. 

Data needed. The data to be obtained are descriptive informa- 
tion on the use of rural land in the area from some time in the 
past up to the present. The period to be covered, the categories 
of land use to be recognized, and the detail of the descriptive 
data will depend on the area and the use to be made of the 
results. The study may vary, depending on circumstances, from a 
rather general description of the trends in the major land uses to 
very detailed description of various subclasses of the major uses. 

The period to be covered may be only a relatively recent one 
or may go back to the earliest use of the land by man, so far as it 
can be determined. In some cases a general description of the 
land use at some time in the past and the changes represented by 
present land use may be sufficient; in other cases description of 
the changes that have taken place in a number of successive 
periods may be needed. Quantitative data — such as areas of land 
in various uses, timber production, grazing capacity, crop produc- 
tion, water or wildlife yields, and numbers of vacationists or 
sportsmen — should be obtained so far as such data are pertinent 
to the objectives and are available. 

Along with obtaining data descriptive of the use of the land, 
data on factors influencing land use should be obtained, either as 
part of a separate study dealing with such factors, or if such a 
separate study is not contemplated, to provide a basis for antici- 
pating probable future trends in land use as a part of this study. 



AGENTS OF PRODUCTION 173 

Included may be data on such factors as climate, topography, 
soils, land-settlement activities, types of settlers, markets for 
forest and farm products, forest fires, logging activities, popula- 
tion and industrial patterns in the area and nearby, transporta- 
tion, taxation, land values, laws affecting land use, intentions of 
landowners with respect to use of their land, and so on. In general, 
these factors fall under two broad economic headings: returns 
from the products of the land, and costs of producing them. 
Knowledge of these causal factors will be needed in some in- 
stances to determine critical turning points in the history of land 
use as well as prospective trends in use. 

Sources of data. The sources of data will vary among areas. 
In many cases the researcher will need to use ingenuity to find 
sources of data, particularly if very early history and considerable 
detail are desired. Among the possible sources are census statistics, 
previous land-use studies of the area, county records, historical 
accounts of the area, newspaper files, records of the U. S. Forest 
Service, U. S. Bureau of Land Management, and other federal and 
state agencies, and the personal recollections of old-time resi- 
dents of the area. 

Procedure. The different kinds of land use involved and their 
respective importance will be known in at least a general way 
when the study is planned, and they should be described in the 
study outline. Usually, however, additional information will be 
needed to determine more precisely the extent and importance of 
each use and the best land-use categories to employ in the study. 
Consideration will need to be given to former as well as present 
uses. 

The various present uses in the area should first be differ- 
entiated. The preciseness and detail of delimitation needed will 
depend on the circumstances, as has been explained. In some 
studies only a general description of the kinds of use will be 
needed, and no delimitation of areas; in others, accurate mapping 
of each kind of use will be called for (see /). 

A similar differentiation of land uses in comparable detail should 
then be determined for the earliest date to be covered by the 
study, which will constitute the original situation for the purpose 
of the study. The course of changes from the original to the 
present land-use pattern should then be traced, with delimita- 
tion of land uses at intermediate times if desirable. 

Prospective trends in rural land use. Prospective trends in the 
immediate future sometimes may be safely presented merely as 



174 RESEARCH IN THE ECONOMICS OF FORESTRY 

continuations of recent past trends. To project prospective trends 
very far into the future, however, requires analysis of the factors 
responsible for past trends, and of the physical, economic, and 
social effects of past and present land use. The procedure discussed 
in topic joa is applicable here. In some cases, recent changes in 
conditions, such as those caused by forest fires, or transfers of 
land to owners with different intent in use, may obviously indicate 
changes in trends of use. 

Presentation of data. For a generalized description of the his- 
tory and past trends a simple narrative type of presentation is 
adequate. For a more detailed study the narrative may be supple- 
mented with summarized statistical data, maps showing location 
of land in different uses at different times, charts or diagrams 
portraying the trends, and photographs illustrating different types 
of land use. 

Reference. Social Science Research Council, Advisory Committee 
on Social and Economic Research in Agriculture: Research in 
agricultural land utilization — scope and method; Social Science 
Research Council Bui. 2; 201 pp.; New York, 1931; pp. 115-119. 

30a. FACTORS RESPONSIBLE FOR PRESENT USE OF LAND— H. E. Selby 

Purpose. To evaluate the physical and socio-economic factors 
that have led to the existing pattern of rural land use in an area, 
with special reference to forest land. 

Scope. Studies of this type may vary in scope from those con- 
cerned with all factors responsible for all types of land use to 
those concerned primarily with the factors responsible for a single 
type of use or with the influence of a single factor on various 
types of use. The study area may vary in size from a few square 
miles to the entire country. 

Because of the great variation in scope of studies of this type, 
and also because practically the entire field of production eco- 
nomics may be involved, the present statement must be general- 
ized. 

Definitions. The discussion of the definition and categories of 
rural land use in topic jo applies here. 

Factors responsible for the present use of land are here defined 
as follows: If any present use of land would be different if any 
present conditions were different, or if any past conditions had 
been different, those conditions are factors responsible for the 
present use of the land. 

Relation to other studies. The study of factors responsible for 



AGENTS OF PRODUCTION 175 

land use, and such study of the history of land use as may be 
warranted, are prerequisites for sound evaluation of alternative 
land uses (31). Ordinarily, studies of responsible factors and of 
history (30) will be made together. If past conditions probably 
are important as factors responsible for present land use, rather 
detailed study of the history of the land use is desirable. For 
example, if an area is used jointly for timber production and 
residence, it may be desirable to know in considerable detail 
when, why, and how the settlement first occurred, how con- 
tinuously it has persisted, and what has been the economic and 
social status of the residents. If the dominant factors responsible 
for present land use are existing conditions such as climate, soils, 
or markets, only general knowledge of the history of land use 
may be necessary. 

Some study of factors responsible for present use of land may 
be a desirable part of various kinds of studies of forest-land 
management problems, such as integration of the timber use with 
other uses of forest land, and the development of policies for 
improving forest-land use and management. 

Data needed. Descriptive data will be needed on the uses of 
land being studied and on the important conditions that may be 
responsible for these uses. Even if the study is concerned pri- 
marily with the influence of a single factor, the researcher will 
usually need to consider the influence of other important factors 
for sound appraisal of the selected factor. 

The factors that are responsible for land use may be physical 
conditions such as climate, topography, and soils; or social or 
economic conditions such as population or industrial patterns, 
markets for forest and farm products, land tenure, land values, 
taxation, transportation, laws affecting land use, land-manage- 
ment practices — timber cutting, tillage methods, use of fire for 
land clearing, grazing practices, strip mining, etc. — and policies 
of land-administering agencies with respect to conservation, land- 
use charges, and commensurability rights. Some of these con- 
ditions — such as kind of soil, land tenure, and land values — are 
characteristics of specific tracts or parcels of land, while others — 
such as markets, transportation, some legal statutes, and some 
administrative policies — are external conditions that impinge 
equally on all land in an area. Some of these external conditions 
may be local; others may be conditions — such as land values, 
markets, and labor supply in other areas — that determine the 
competitive position of the study area; still others may be general 



176 RESEARCH IN THE ECONOMICS OF FORESTRY 

economic or social conditions such as the business cycle, nation- 
wide demand for certain forest products, or social security legisla- 
tion. Some conditions, climate for example, are stable; while 
others, such as land laws, are changeable. 

Sources of data. The sources of data will be as varied as the 
kinds. Previous land-use studies in the area should be reviewed. 
Other likely secondary sources are forest surveys, climatological 
reports, geological survey reports, census statistics, records of 
timber and logging companies, county records, and records of 
the U. S. Forest Service, U. S. Bureau of Land Management, and 
other federal and state agencies. Original compilation of data on 
various physical and socio-economic conditions will be necessary 
in most studies. 

Procedure. The procedure will be designed for each study 
according to the area involved, the kinds of land use, whether the 
principal factors responsible for land use are characteristics of 
particular tracts of land, and whether comparative advantages in 
other areas require study. The possible procedures may be divided 
into three phases : first, differentiation of land uses; second, evalua- 
tion of factors responsible for land use; and third, analysis of 
related factors. The extent to which each of these phases of 
procedure will be needed will depend on the study. 

1. Differentiation of land uses. The different kinds of land use 
and their respective importance will be known in at least a general 
way when the study is planned, and they should be described in 
the study outline. Usually, however, additional information will 
be needed to determine more precisely the extent and importance 
of each use and the best land-use categories to employ in the 
study. 

The precision with which the various land uses should be 
differentiated and delimited will depend on the circumstances. 
If the study is concerned chiefly with major types of use, such 
as timber growing, grazing, and farming, and if the important 
factors responsible for land use are not characteristics of the land 
itself, only general description of the kinds of use will be needed, 
and delimitation of areas may not be necessary. But if the study 
is concerned with more specialized types of use and the responsible 
factors include characteristics of the land itself — such as kind of 
soil, land tenure, and land values — more precise definition of the 
different uses will be needed, with accurate mapping of both the 
land uses and the land characteristics that may be responsible 



AGENTS OF PRODUCTION 177 

for these uses. Surveys may be needed for the delimitation and 
mapping. 

2. Evaluation of factors responsible for land use. Usually it 
will be known when the research is planned that certain conditions 
are responsible for certain uses of land. Whether other known 
conditions are responsible factors will be a matter for study. 
Further, there will be the possibility that some unknown condi- 
tions are responsible factors. To illustrate, when the study is 
planned it may be known that fire hazard is a factor responsible 
for certain land being used for grazing rather than timber growing; 
the cost of clearing cutover land for farming may be known, 
but not whether it is a factor responsible for certain cutover land 
being used for grazing rather than farming; and it may be un- 
known that a particular subdividing and sale of land in the past 
is a factor responsible for certain land being used for farming 
rather than timber growing. The investigator must decide how 
much study is warranted of each known condition that may be a 
responsible factor, and how much search for additional factors. 

The study outline should set forth as a hypothesis the factors 
responsible for land use that are likely to be important, or the 
important differences in land use for which a given factor is 
likely to be responsible (see Salter, cited). These relationships 
should be examined first. If they are found not to explain present 
land use adequately for the purposes of the study, the investigator 
should then search for additional factors. For example, when the 
study is planned it may be thought that differences in soil type 
are responsible for certain differences in land use; however, in- 
vestigation may disclose no significant differences in soil type, 
and some other explanation of the differences in use must be 
sought. 

Knowledge of factors that can be changed will be more useful 
for improving land utilization or for solving land-management 
problems than knowledge of unchangeable factors, but knowledge 
of unchangeable factors may be necessary for sound evaluation of 
the changeable ones. Recent or prospective changes in conditions 
that may influence future land use should receive particular at- 
tention. 

Overlaying maps of the land uses with maps of land character- 
istics will be an effective procedure in many studies. In the case 
of some factors, it may be desirable to determine quantitatively 
their relation to land use — for example, land elevation, assessed 



178 RESEARCH IN THE ECONOMICS OF FORESTRY 

valuation, or soil-productivity rating may be correlated with 
land use. Occasionally, mathematical correlation may be used 
advantageously to disclose significant relations. 

3. Analysis of related factors. Depending on circumstances, 
attention may be directed to how or why each factor is responsible 
for land use, and to the factors that may be responsible indirectly. 
Such study usually opens up complexes of related factors. The 
immediately " responsible" factor may be merely a symptom of 
more fundamental underlying factors. The extent of scattered 
settlement in a predominantly timber-growing area may be a 
factor " responsible" for grazing use of land in the area. But the 
settlement occurred because workers were left stranded by aban- 
donment of a logging operation; the logging was stopped because 
certain owners were unwilling to sell timber; the timber owners 
were unwilling to sell because the price of timber was too low; 
the price of timber was low because of the high cost of trans- 
portation; and so on. Exploration of all the possible related factors 
could lead through the entire realm of physical and social science. 

Obviously, judgment must be used to decide how far to analyze 
related factors. One situation may require merely a determination 
that soil types are responsible for certain land uses; another 
situation may call for a complex study of alternative employment 
opportunities for land, labor, and capital to explain why the soil 
types are responsible. 

Presentation of data. For some studies a comparatively simple 
description of the conditions and statement of their relations to 
present land use will be adequate. For more involved situations, 
especially if characteristics of the land are responsible for its use, 
or if statistical analysis has been involved, more detailed presenta- 
tion will be necessary, making use of maps portraying the land 
uses and various influencing factors, summaries of statistical data, 
and charts and diagrams to explain the relations. Photographs 
illustrating the land uses and the responsible factors may add to 
the effectiveness of the presentation. 

References. (1) Social Science Research Council, Advisory Com- 
mittee on Social and Economic Research in Agriculture: Research 
in agricultural land utilization — scope and method; Social Science 
Research Council Bui. 2; 201 pp.; New York, 1931; pp. 1 5-1 19. 
(2) Ely, Richard T., and George S. Wehrwein: Land economics; 
xiii, 512 pp.; New York, 1940; particularly Chs. V, VIII, IX, 
X, and XIV. (3) Renne, Roland R.: Land economics; xiv, 736 
pp.; New York, 1947; Chs. V and VII-XIII. (4) Salter, L. A., 



AGENTS OF PRODUCTION 1 79 

Jr.: A critical review of research in land economics; 258 pp.; 
Minneapolis, 1948; pp. 130-174. 

31. EVALUATION OF ALTERNATIVE LAND USES 

Where the forest uses of land are involved among others in an 
area, to determine the use of land that will result in the max- 
imum net benefit to the community. 

Studies of this type begin with the assembly of comprehensive 
data on (a) the nature and extent of the physical resources of 
the area, (b) the labor supply, capital facilities, and other agents 
of production which are available or can be made so, and (c) 
the economic environment of the area in terms of the market 
outlets available to it, the prices obtainable for products produced 
in it, the costs of agents of production used there, and related 
considerations. As forest uses of the land represent only one of 
the possible alternatives with which the problem is concerned, 
the data must reflect the physical and economic characteristics of 
crop production, forage utilization, mineral exploitation, or what- 
ever other nonforest uses of the land are pertinent for the area in 
question, as well as the conditions of forest production and use. 

Usually the existing pattern of land use will next be mapped, 
and the economic effects of such use evaluated in terms of net 
benefits to the community. The techniques of benefit-cost deter- 
mination are those of topic 14, and the data and methods of 
related studies concerned with returns from the forest economy 
will be needed (e.g., see 8, p, and //). Attention may also be 
directed at the historical origins of the existing pattern (30) as a 
means to fuller understanding of the situation. At this stage, the 
researcher must deal with a variety of difficult problems centering 
on the meaning and interpretation of the basic criterion, maximum 
net benefit to the community. For example, in addition to absolute 
amount, how do such aspects as the distribution, timing, per- 
manence, or associated risk of indicated benefits or costs relate 
to determination of the "maximum"? What "community" should 
be used as the reference for benefit-cost measurement? Should it 
be the land area under study? The community which in some 
sense is "dependent" on it? The nation as a whole? These and 
related problems must be solved before this stage of the evalua- 
tion can be completed. 

Finally, the investigation turns to patterns of land use which 
are practicable alternatives to the existing one. Given the basic 
physical and economic conditions described in the first phase of 



180 RESEARCH IN THE ECONOMICS OF FORESTRY 

the study, what are the characteristics of such alternative pat- 
terns? What would be the economic effects, in terms of net benefits 
to the community, of the adoption of such patterns? What are the 
major institutional and other obstacles which may preclude or 
hinder shifts of land use in the direction of those alternatives 
which promise greater net benefits than are obtainable under the 
existing pattern? In addition to economic considerations, socio- 
logical aspects (77) may have to be introduced at this point to 
recognize adequately the interrelationships between a given land- 
use pattern and the structure of the society which is built on it. 

31a. EVALUATION OF PASTURE VERSUS FOREST USE OF LAND 

To evaluate the costs and returns to the owner and to the 
community of pasture versus forest uses on specific land areas on 
which the two uses are mutally exclusive. 

This is one of a family of studies covering the range of land-use 
alternatives. (Another member of the family, which may be of 
greater importance in some areas, centers on conflicts between 
forest and crop uses.) The study is concerned, first, with an 
economic evaluation of the physical adaptability of the land. 
What will happen to soil fertility and water relations under each 
of the two use alternatives? What are the probable economic 
consequences of these physical changes for the owner and for 
the community? The study is concerned, secondly, with the other 
input costs and with the output values that will influence land 
use. What will be the costs and returns under forest and under 
pasture use? Are there significant differences in net returns when 
viewed from the standpoint of landowners operating different 
types and sizes of business units? Are there significant differences 
from the viewpoint of the owner and from the viewpoint of the 
community? 

Estimates of net returns will ordinarily be based on case-study 
data on costs and returns from similar tracts of land in forest 
and in pasture. 

The study is one of the building blocks necessary to the analysis 
described in topic 31. Its scope is narrower, being confined to a 
particular tract of land and to specified use alternatives. 

LAND TENURE 

This section deals with the basic institution of tenure, which 
underlies forest land use and management. Tenure is conceived in 
its broadest sense as the holding of rights, not only the private 



AGENTS OF PRODUCTION 181 

rights associated with ownership, leasing, and other such forms 
of interest in land, but also the many public and government 
rights, such as those of taxation. (Studies primarily of taxation 
are classed as Financial problems of forest management; reference 
is made to topics ^5, 46.) 

The first three studies in this section are descriptive: What are 
the rights in forest land? Who holds these rights? How, and under 
what terms, are the rights exchanged? The remaining studies are 
aimed at^evaluating the influence of tenure on forest management. 

32. FORMS OF FOREST-LAND TENURE— Adon Poll 

Purpose. To describe the principal forms of forest-land tenure, 
to explain the origin of these forms, and to analyze the role they 
play in forest use and management. 

Definitions. Land tenure pertains to all rights of property in 
land, and to the various ways in which these rights are shared 
among all participants in the control and use of land. 

Tenure in its broader sense generally refers to several types of 
relationships among men which determine their varying rights in 
land. As forest land is controlled by many different types of 
agencies and individuals, and is used for numerous purposes, it is 
necessarily subject to a wide variety of forms of tenure. These 
range from the mere privilege of walking through a forested 
park to full ownership of the land itself. 

Tenure deals with ownership of land — for example, who the 
owners are and what they represent in terms of attitudes toward 
their land. Ownership of forest land may be public or private. 
Public ownership includes land owned by federal, state, county, 
municipal, and other public agencies. Private ownership refers to 
land owned by various individuals, corporations, and private 
institutional organizations. 

Tenure deals also with the operational phases of land. Operating 
tenure involves factors like leasing arrangements, practices, and 
customs; agreements between owners of timberland and timber 
operators who cut and remove the timber from the land; agree- 
ments between owners of wooded farms and their tenants; police- 
power regulations of public land agencies; and the way in which 
ownership units are combined or split into larger or smaller 
operating units through operational agreements to form operating- 
unit patterns that are often totally different from ownership 
patterns. 

Forest land of public agencies such as the U. S. Forest Service 



1 82 RESEARCH IN THE ECONOMICS OF FORESTRY 

and the U. S. Bureau of Land Management is subject to use by 
others for numerous purposes under a wide variety of tenure 
conditions. For instance, permits for use of forest land in the 
national forests are issued for camping and other forms of recrea- 
tion, grazing of livestock, cutting of timber, and even for per- 
manent cabin sites in certain selected areas. Some uses are allowed 
without charge; others require payment of fees or other charges. 
Eligibility for use of public land sometimes requires special quali- 
fications on the part of users, such as commensurate property 
rights for obtaining livestock grazing permits. Regulatory meas- 
ures or restrictions — such as maximum number of cattle grazed 
per allotment, proper use of fire, and timber cutting practices 
allowed — are usually imposed by the administering agencies. 

The use of privately owned forest land also involves many 
forms of tenure. The granting by owners of forest land of recrea- 
tional and grazing privileges or leases to others is a common form, 
as are operating agreements between landowners and timber 
operators who cut and remove the timber from the land. Logging 
agreements between owners and operators usually require pay- 
ment for timber on an acreage or stumpage basis. Actual payment 
may be made at the time timber is purchased, when it is cut, 
or when the sawed lumber is sold by the operator. In some 
instances, adherence to certain logging practices may be an im- 
portant feature of the agreement. Standing timber is sometimes 
sold separately from the land long before it is cut. In such cases, 
the land and the timber may be assessed separately, so that each 
participant pays for his share of the taxes levied on the land and 
on the timber until the timber is finally cut. In localities in which 
multiple uses of land prevail, rights in a parcel of forest land may 
be vested in several different owners at the same time. For 
example, surface rights of the land itself, excluding timber, may 
belong to a rancher or a recreational owner, timber may belong 
to a timber operator, subsurface mineral rights to a miner, and 
water rights in the watershed and the streams flowing on the 
land to an irrigation or power concern. 

Relation to the field. As tenure deals with rights in and control 
of property, it is related directly to management and use of land. 
Hence it is important to compile and analyze data concerning 
forest tenure so that those interested in management of forest 
land can more readily identify the various forms of tenure present 
in a forest area, and can know something of how they came to be 
there and how they influence forest use and management. 

In analyzing the tenure status of forest land, significant rela- 



AGENTS OF PRODUCTION 183 

tionships between forms of tenure and management of forest land 
become apparent (see 35 through 38) . Intensity of management 
may vary between units of forest land because some owners are 
public, others private; some are resident and some nonresident; 
some acquired their land voluntarily, others involuntarily; some 
have small holdings, others large; some operate their own land 
holdings, others rent; some log their own timber, others sell 
stumpage; and so on. 

For example, an analysis of tenure conditions may show that 
management practices of resident owner-operators generally are 
superior to those of nonresident owners. This may be because 
owner-operators who stay on their land become familiar with 
their property and so give it the attention it requires. They are 
there to protect the timber from fire and other hazards, and to 
see that the timber stands grow properly. When the timber is 
finally cut, they can supervise the cutting and insist that it be 
done according to accepted standards. The nonresident owners, 
on the other hand, may never have seen their land or they may 
see it only occasionally. With them, ownership and management 
of forest land are likely to be side lines rather than major interests. 
Hence, they are generally in poor position to handle complicated 
dealings concerning the land. When the timber is cut, operators 
may take advantage of the owner's position and do such a de- 
structive job of logging that the land becomes unsuited for future 
commercial timber production. 

Apparent also may be variation in management between owners 
who voluntarily buy their land and those who acquire land in- 
voluntarily through foreclosure, inheritance, or gift. This may 
be because purchasers generally have definite objectives for own- 
ing land. Consequently they plan their activities and are likely 
to give more time and attention to their investments than are 
those who acquire forest land with little or no effort. 

Management may vary also between holdings of different sizes. 
Some land may be in units so small as to be economically unsuited 
for uses which allow good management practices, whereas land in 
larger units may offer better possibilities for the development of 
economically feasible and constructive timber-management plans. 

These are only a few illustrations of a much larger number of 
relationships that exist between the various forms of land tenure 
and management of forest land. Continued research in this field is 
essential to determine the actual significance and influence of 
forest-land tenure. 

Obtaining the data. Tenure practices and customs generally 



184 RESEARCH IN THE ECONOMICS OF FORESTRY 

vary between localities, regions, and nations. Consequently, in 
order to analyze properly the many typical forms of tenure, some 
of which are mentioned in the section on definitions, general 
information describing them must be derived from a large number 
of sources. The first step is to make an exhaustive search for 
literature dealing with forest-land tenure. Bibliographies com- 
piled by national libraries and by librarians and technicians of 
government research agencies, universities, colleges, and profes- 
sional organizations offer excellent leads to a great deal of litera- 
ture dealing with specific subjects. 

In comparison with other fields of economics, literature that 
pertains to any one specific phase of land tenure has heretofore 
been somewhat limited, and most of it has dealt principally with 
tenure of agricultural land. Because of the limited amount of 
secondary data that may be available on the subject, research 
workers should inspect rather carefully all the writings which 
appear even remotely to deal with forest-land tenure. It is im- 
portant that certain literature pertaining to tenure of agricultural 
land be reviewed along with that dealing strictly with tenure of 
forest land, because it will undoubtedly be found that some 
studies of tenure of agricultural land also deal partly with tenure 
of forest land. 

Since certain forms of tenure have originated in foreign coun- 
tries, it is wise to review some literature from other countries too, 
particularly countries which have developed intensive forestry 
programs. 

Literature from secondary sources should provide data with 
which to describe in general terms the principal existing forms of 
forest-land tenure, as well as their origin. It should also furnish 
research workers considerable knowledge of individuals and agen- 
cies that may possess other supplementary information. 

After a careful review of available secondary data, additional 
basic information from primary sources undoubtedly will be 
needed for proper analysis and presentation. Principal sources of 
these data are professional foresters, economists, administrators 
of public forest land, timber operators, owners of timberland, 
and other individuals and agencies which may have unpublished 
information concerning the ownership, administration, and use of 
forest land. 

Information from these sources can be obtained by corre- 
spondence, or by interviews where practicable. Names of indi- 
viduals and agencies that are likely to have information pertaining 



AGENTS OF PRODUCTION 1 85 

to forest-land tenure may be obtained from published directories 
of public and private agencies such as the Directory of Organiza- 
tion and Field Activities of the Department of Agriculture, Workers 
in Subjects Pertaining to Agriculture in Land-Grant Colleges and 
Experiment Stations, and the West Coast Lumberman' 's Handbook 
and Directory of the Western Forest Industries; membership lists 
of professional and business organizations such as the American 
Farm Economic Association, Society of American Foresters, West 
Coast Lumbermen's Association, and Appalachian Hardwood As- 
sociation; rosters of state and local public officials; and bibliog- 
raphies. If many data from primary sources are needed, a 
questionnaire form should be carefully worked out which, when 
properly executed, will furnish the necessary quantitative and 
qualitative data pertinent to the study. 

Analysis and presentation. It seems likely that in many studies 
much of the data will be qualitative. In some cases a little statis- 
tical analysis will be involved. Presentation then probably would 
be narrative, with some tables, charts, and figures. Because data 
will be derived from many different sources, the judgment, ex- 
perience, and skill of research workers in locating, selecting, evalu- 
ating, coordinating, and interpreting the data will determine to a 
large degree the ultimate value of the completed study. 

An important phase of the analysis is the development of 
appropriate classifications of the various forms of forest-land 
tenure. In order to classify tenure properly into significant cate- 
gories, it may be desirable to make as many observations as 
possible directly in the field. The classes probably will need to be 
rather broad so as to handle tenure information which undoubtedly 
has previously been classified in many different ways in the various 
sources from which it is obtained. The division between the 
tenure classes established, however, should be decisive and clean- 
cut, with no confusing overlap between classes. The nature of 
the appropriate classification will depend upon the specific ob- 
jectives of the project. Examples that show relationship between 
project objectives and classification may be observed in some of 
the references cited, particularly Nos. 3, 6, and 7. 

Having set up an appropriate classification scheme, the next 
step is to sort the basic data into the various classes. This may 
be done mechanically by the use of card-sorting systems if many 
statistical data are involved, or manually with tabulation sheets 
if only a limited number of statistical data are available. 

Origin of the various forms of tenure is developed by interpreta- 



1 86 RESEARCH IN THE ECONOMICS OF FORESTRY 

tion of historical records dealing with land tenure. Presentation 
of this phase of the study is largely narrative and contains only 
a few statistical facts. 

The role that various forms of forest-land tenure play in forest 
use and management is developed mainly through analysis of 
the way in which certain characteristic features of forest tenure 
are associated with and influence the use and management of 
forest land. Some area studies of actual relationships between 
tenure and management are described in topics 36 and following. 

References. The following publications are listed to illustrate 
typical examples of literature useful in a study of this type: (1) 
Harris, Marshall Dees: The genesis of the land tenure system of 
the United States; Abstract Ph.D. thesis, Univ. 111., 19 pp.; 
Urbana, 1945. (2) Kraemer, Erich: Tenure of new agricultural 
holdings in several European countries; U. S. Dept. Agr. Social 
Research Report 2; 92 pp., processed; Washington, 1937. (3) 
Wooton, E. O.: The relation of land tenure to the use of the 
arid grazing lands of the southwestern states; U. S. Dept. Agr. 
Bui. 1001; 72 pp.; Washington, 1922. (4) Hibbard, Benjamin H.: 
A history of the public land policies; xix, 591 pp.; New York, 
1939. (5) Renne, Roland R.: Land economics; xiv, 736 pp.; New 
York, 1947; especially pp. 429-517. (6) Folweiler, A. D., and 
H. J. Vaux: Private forest land ownership and management in 
the loblolly-shortleaf type of Louisiana; Jour. Forestry 42, 11, 
pp. 783-790; 1944. (7) Poli, Adon, and Donald T. Griffith: Forest 
land ownership in northern Mendocino County, California; Cal. 
For. and Range Exp. Sta., Forest Survey Release 5; 49 pp., 
processed; Berkeley, 1948. 

33. HISTORY, STATUS, AND TRENDS OF FOREST-LAND TENURE— Charles 
H. Stoddard 

The purpose of this research is to describe and explain past 
changes and present status and trends in forest and forest-land 
tenure in an area, and to relate tenure changes to changes in the 
forest economy. 

The distinguishing feature of this research is its concern with 
the evolutionary processes in tenure conditions. The point of 
view and methodology are historical, making use of all available 
data describing tenure conditions in specified localities at various 
points in time. Any tenure research, such as in topics 36-38 and 
^5, may be approached from the historical angle under this head- 
ing. The general approach and methods of presentation resemble 
those described under topics 30 and 30a. 



AGENTS OF PRODUCTION 1 87 

Changes in class of ownership will most commonly be the 
subject of study, in which case historical records will be compiled 
concerning number and size of holdings, type of owner, etc., as 
developed in topic 37, on the relation of ownership to forest 
management. In some areas, analysis may deal with trends in 
the concentration of land in the hands of specific owner classes — 
individuals, corporations, or public agencies. For example, what 
factors have attended the withdrawal of private ownership from 
an area? Heavy debt, forest liquidation, and tax delinquency? 
Slow timber growth and poor long-run profit prospects? In other 
areas, changes in owner-occupation class, as related to the prob- 
lems of resource use and management or of market competition, 
may be the central question. For example, increases in farmer 
ownership of forest land may promise to maintain an open market 
for timber products. Increases in pulp-company ownership may 
promise better timber management. In still other areas, the key 
problem may be subdivision of holdings through sale or inherit- 
ance, with consequent emphasis on changes in the ratio of re- 
sources to population, on matters of woodland size, or on other 
factors bearing on forest use, management, and income. The land 
market attending such shifts in ownership may be studied (see 
34). In any case, the institutions and conditions which are related 
to the ease with which changes in tenure can occur will be given 
close attention. 

Tenure forms other than fee-simple ownership may similarly 
be studied. For example, the history of the separate holding of 
subsurface rights may be traced, and the effect of past and 
prospective trends upon the income from the forest economy 
evaluated. Again, attention may be turned to the changing role 
of banks or other creditors, or of farm tenants, in forest-land use 
and management. 

There are a number of important special aspects of the field. 
One, as an example, concerns stability of tenure, a consideration 
vital to forest management. How long do forest holdings remain 
in one owner's possession, or in the possession of one family? 
How long do other right-holders, particularly tenants, remain 
in possession? Are some types of forest ownership significantly 
more stable than other types? Trends in stability may be investi- 
gated. Areas may be differentiated on the basis of tenure stability. 

34. THE FOREST-LAND MARKET— Raleigh Barlowe 

Purpose. To identify the transfers of title to rights in forest 
land in an area during a specified period of time; to determine 



1 88 RESEARCH IN THE ECONOMICS OF FORESTRY 

the quantity, quality, and price features of these transactions; 
to analyze price changes; to analyze the results of such transac- 
tions in terms of changes in the type and extent of tenure; and 
to evaluate the effect of land exchanges on forest and forest-land 
management. 

Definitions and scope. The concept of a market here includes the 
entire area within which the forces of supply and demand operate 
in effecting exchanges and establishing prices for any given 
tract of forest land. Land-market studies are concerned primarily 
with the details of the transactions that take place when landed 
property rights are conveyed from one owner to another. 

The problem involved in the study of forest-land markets is 
not simple. Current market values are never reported on any 
commodity exchange. Forest land, like other landed property, is a 
nonstandardized, highly differentiated product. Like farm land, 
each parcel of forest land differs from every other in location, 
access to roads and markets, fertility and productive capacity, 
extent of development or improvement, and general capacity to 
fill the wants and needs of prospective buyers. 

Studies of the forest-land market and its trends are complicated 
by differences in timber type, size, stocking, and quality; by the 
not infrequent lack of sales of lands of comparable character; and 
by the fact that small forest tracts often are sold in conjunction 
with nonforest properties, with no discernible separate valuation 
being made. A further complication springs from the need for 
clearly differentiating between those sales or conveyances that 
involve complete transfer of both the land and the timber on it 
and those that involve transfer of timber rights only. Data on 
sales of timber-cutting rights provide an excellent measure of the 
market value of timber, and may provide an important analytical 
tool for determining the value of lands apart from their timber 
resources. Timber deeds and similar instruments for the con- 
veyance of timber-cutting rights, however, should not be con- 
fused with sales involving forest lands. 

The principal problems involved in the study of the land market 
are (a) securing a representative sample of the forest properties 
entering the land market in any year, (b) obtaining usable data 
on the sample selected, and (c) objectively analyzing the data 
secured. 

Relation to the field. Land-market surveys and analyses can 
be conducted alone or in connection with studies of ownership, 
credit, and other economic and institutional aspects of forestry. 



AGENTS OF PRODUCTION 1 89 

Land-market data reflect the impact of the general business cycle 
on the forest economy and the attitude of the buyers and sellers 
in the market place regarding the profitability of forestry invest- 
ments or short-run timber operations. Trend studies should suggest 
the general impact that such factors as price levels, market ac- 
cessibility, transportation costs, interregional competition, inter- 
national trade policy, taxation policy, and selected management 
practices have on forest-property values. In certain areas, analysis 
of the economic character of the land market — e.g., its structure, 
imperfections, and competitiveness — may be basic to the study 
of related fields such as taxation, credit, and ownership. The 
possibilities for interrelating land-market findings with data as- 
sembled in other studies are great and represent a significant field 
for research in the economics of forestry (see, for example, 2, 6,30, 

37, 45, 4$, 49, &)•. 

Data needed. It is improbable that market data can be secured 
for all or even a major proportion of the forest-land transfers in 
any large study area. Some sampling process will usually be 
needed. In devising the sample, one should make certain that 
all major types of forest holdings are represented. If one is to 
acquire an accurate picture of the over-all market situation, 
representative samples should be taken of transfers involving 
farm woodlands and scattered small forests as well as large com- 
mercial holdings. Consideration also should be given to public 
as well as private sales and to properties with merchantable 
timber that the buyer intends to harvest as well as forests that 
will be held for future exploitation or for growth. 

The amount of data needed on each land transfer included in 
the sample will depend upon the detail desired in the analysis. 
As a bare minimum, data should be assembled concerning the 
type of transfer (voluntary, distress, or other), the acreage in- 
volved, the quality or general character of the land and its 
forest cover, and the price or consideration received by the seller. 
The analysis of the market situation can be more complete and 
more meaningful if information is secured and analyzed con- 
cerning a number of other significant factors. Most pertinent are 
the data on timber type, size, stocking, quality, and value; data 
on the nature of the property rights conveyed and reserved in 
the market transaction; and data on the seller's reason for selling 
and the buyer's reason for buying. A forest tract may be bought 
for clearing or for forest uses, which may include hunting, recrea- 
tion, grazing, and the like, in addition to the various timber 



190 RESEARCH IN THE ECONOMICS OF FORESTRY 

uses, or some combination of these. Additional valuable informa- 
tion might be assembled on such subjects as occupation and 
residence of the buyers and sellers, the tenure status of the 
operator, the new owner's intentions regarding forest manage- 
ment and land-use practices, and the buyer's use of credit in 
acquiring the land. 

Analyses of the effects of land exchanges on forest management 
may require follow-up studies in which data are collected to 
indicate the extent to which the new owners have fulfilled their 
management intentions and the changes in management that 
they have effected. 

Collection of data. Few, if any, systematic attempts have been 
made to study the forest-land market. A considerable amount of 
pioneering must yet be done in this field, and many of the methods 
used will be subject to experimentation and adjustment. 

At this stage it seems best to model suggested research ap- 
proaches after those that have been used with some success in 
studies of the farm real estate market. The Farm Real Estate 
Situation reports issued periodically by the U. S. Bureau of 
Agricultural Economics are based primarily on data collected in 
three kinds of surveys : (a) quarterly surveys of the land-market 
situation in selected counties based on deed-registration records, 
local interviews, and mailed questionnaires; (b) estimates of aver- 
age values of farm real estate within numerous scattered neigh- 
borhood areas made by the crop reporters for the U. S. Depart- 
ment of Agriculture; and (c) annual reports by selected farm 
real estate dealers on value and price trends, types of buyers and 
sellers, and other related data. These same approaches are gen- 
erally applicable in studies of the forest-land market. 

The deed, usually legally recorded shortly after transfer of 
title, contains basic information concerning the buyer and seller, 
the kind of transfer, the location and acreage of the property, 
and very often the consideration paid by the buyer. Where the 
exact consideration is not recorded, its value can usually be 
approximated from the number of revenue stamps attached to 
the deed. 

Periodic examination of deed-registration records can provide 
a fruitful approach to the study of market trends. It can be used 
to best advantage in areas in which forest lands occur in large or 
fairly well-defined blocks or in those cases in which the researcher 
or his local collaborators can distinguish between the legal de- 
scriptions of forested and nonforested properties. In sample areas 



AGENTS OF PRODUCTION 191 

meeting these qualifications, basic market data can usually be 
secured either by personal inspection of deed registrations or by 
hiring local persons or officials to copy off needed information. 
These basic data can be supplemented by additional informa- 
tion secured through interviews or from questionnaires mailed to 
buyers and sellers. 

Unfortunately this survey approach has definite limitations 
when it is applied to forest lands interspersed among farm and 
other nonforest lands. The problem here is one of limiting the 
case listings, special interviews, and questionnaires to forest prop- 
erties. Data on these cases are needed for representative sampling 
purposes. Yet the relative scarcity of cases involving forest lands 
as compared with those concerning farm crop lands in these 
areas may discourage the use of separate surveys for forest lands. 
Cooperative surveys involving both farm and forest lands may 
provide the solution to this problem. 

Other forest-land market-survey techniques can involve making 
spot sample studies, having individuals in scattered neighbor- 
hoods periodically report on forest-land sales and values, or check- 
ing with real estate agents who handle forest-land sales or with 
public agencies or private firms engaged in forest-land acquisi- 
tion. These surveys can be designed to cover specific areas or the 
nation as a whole. They might stand alone or they may be used 
to provide supplementary data for checking other survey find- 
ings. 

Wherever reliance is to be placed on local agents to report 
market transactions, the agents must be selected with great care 
for their ability to classify the forest tracts as needed in the study, 
and in any event some on-the-ground follow-up of this part of the 
work may be needed from the researcher or research organiza- 
tion. 

Analysis of data. The primary purpose of land-market surveys 
is the presentation of accurate descriptions of the land-market 
situation at any given time. To secure this objective it is always 
necessary to process the raw survey data, and in large sample 
studies it is frequently desirable to adjust and weight the survey 
findings to make them truly representative. 

Needed adjustments usually involve either eliminating survey 
biases or building up the sample for under-enumerated segments 
of the universe. These adjustments should be made with the 
advice of a statistician. The process of weighting the sample may 
have to be developed over a period of time as new data gathered 



192 RESEARCH IN THE ECONOMICS OF FORESTRY 

in surveys conducted by the Bureau of the Census, the Forest 
Service, and others indicate the need for adjustments. 

Once the data are adjusted to correspond with the general 
market situation in the area studied, they may be considered 
ready for presentation. At this stage one might, with little or no 
analysis of the data, report the general survey findings. Usually, 
however, it will be found desirable to make at least a simple 
analysis of the data by computing averages and ranges in values 
and by cross-tabulating the more important findings. Where the 
researcher has sufficient time and resources at his disposal, he 
should increase the fruitfulness of his study by making a more 
rigorous analysis of his data. He can do this by using a case- 
grouping as well as a cross-sectional approach, by delving into 
the problems of price changes and price trends, by analyzing the 
effects of land exchanges on forest management and other factors, 
and by exploring the interrelationships between market prices or 
trends and such other factors as general price levels, timber 
condition, the status of forest management, types of buyers enter- 
ing the land market, timber-market accessibility, transportation 
costs, tax policy, interregional competition, and stability or in- 
stability of tenure (rate of turnover). 

References. Research workers in this field should acquaint 
themselves with the methods and techniques used in the land- 
market studies of the U. S. Bureau of Agricultural Economics. 
The results of these studies are published periodically in the 
Farm Real Estate Situation circular series of the U. S. Department 
of Agriculture. For a description of sources of data and methods 
of compilation, see Dept. Circular 377, February 1927; and Circu- 
lar 209, December 193 1. See also Hasel, A. A., and Adon Poli: A 
new approach to forest ownership surveys; Land Economics 25, 1, 
pp. 1-10; 1949. James, Lee M.: Determining forest land owner- 
ship and its relation to timber management; Jour. Forestry 48, 
2, pp. 257-260; 1950. Poli, Adon: Conducting a survey of owner- 
ship of forest land in California; Agricultural Economics Re- 
search 4, 1, pp. 8-12; 1952. 

35. EVALUATION OF TENURE ALTERNATIVES FOR FOREST LAND— M. M. 
Kelso and Layton S. Thompson 

Purpose. To evaluate forest-land tenure alternatives in an area, 
with a view to formulating objectives with respect to tenure 
arrangements. 

Definitions. Tenure may be defined as "those relationships 



AGENTS OF PRODUCTION 1 93 

established among men which determine their varying rights in 
the use of land" (Renne, cited; p. 429). Tenure has to do with 
the division of rights among owners, occupiers, creditors, and 
the general public. Consideration of forest-land tenure involves 
less emphasis on occupying, and more on holding and use of land 
through time, than does agricultural-land tenure. 

A tenure type is one reasonably homogeneous category of "rela- 
tionships among men." 

Relation to the field. The question of what types of tenure are 
applicable to forest enterprises when the emphasis shifts from 
simply harvesting, or extracting, to a full cycle of production 
has been inadequately explored in the United States. 

This research is closely related to other topics in the present 
section. Topic 37, which deals with the relation of ownership to 
forest management, is in effect a special case of this topic. Else- 
where, topic ji is parallel to this one in the field of land use. 
Some fundamental approaches to the evaluation problem in gen- 
eral are given in topic 14. 

Procedure. 1. Selecting the study area (/). An area should be 
selected where there is considerable uniformity in forest con- 
ditions and problems. 

1. Stating the criteria to be used in the evaluation of tenure 
alternatives. Evaluating forest-land tenure alternatives can have 
meaning only if it proceeds with reference to specific goals of 
forest-land policy. It is particularly important that policy goals 
be clearly stated for areas where multiple-purpose forest manage- 
ment is applicable (^7). Tenure problems may be exceedingly 
complex in such areas. 

One of a number of goals may be used by the research worker, 
such as promotion of a particular forest use, industrial develop- 
ment, sustained productivity of resources, or maximum welfare 
to society and individuals. The last will be especially important 
in multiple-purpose forest areas, but very difficult to measure 
objectively, since consideration must be given to costs which 
impinge upon society and benefits which accrue to society as well 
as to costs and benefits which show on the books of private 
operators. 

3. Describing resource-management goals based upon these 
criteria (//, 12, 47, 90). The researcher will attempt to describe 
the optimum forest situation in the study area, in relation to 
which he is going to evaluate tenure arrangements. As an example, 
this optimum may be in terms of forest income and employment, 



194 RESEARCH IN THE ECONOMICS OF FORESTRY 

long-run production — or consumption — of timber products, and 
output of other forest goods and services. 

4. Defining tenure types (32). This step consists of describing 
and classifying tenure types applicable to forest land. The re- 
searcher may consider the possibility of distinguishing between 
property (rights) in land and property (rights) in timber, much 
as mineral rights are often separated from ownership of surface 
rights in fee simple. This may result in a tenure classification 
different from what would otherwise be made. The standard 
classification used for agriculture — croppers, tenants, part owners, 
full owners, and so on — cannot be carried over to forestry. The 
notion is rather common that forest-land tenure boils down to a 
question of private versus public ownership of land. This is to 
oversimplify the problem. As a matter of fact, the alternatives 
are not known. Forest industry, for example, can hardly be said 
to have settled down to a stable pattern of production ; from the 
standpoint of the time required to grow a tree, the industry is 
just now struggling with the beginnings of a new system. 

Forest-land use has some distinguishing characteristics that 
have a close bearing on tenure alternatives : (a) The typical forest 
owner does not settle down on a piece of forest land and combine 
the enterprise with his home as is done in the case of farm land, 
(b) Only recently has the typical private forest enterprise in- 
cluded much more than timber harvesting. The concept of forest 
cultivation, which includes planting, stand improvement, thin- 
ning, insect and disease control, and fire control is, as a whole, 
relatively new in this country, (c) It takes a long time to grow a 
crop of trees, and in some cases there is a long wait for a return 
on investment in land or in forest cultivation, (d) In areas where 
several of the multiple purposes of forest management are im- 
portant, all these purposes may not lend themselves well to 
promotion by the same operator. It is not difficult to imagine one 
private operator who would be interested in grazing purposes and 
certain types of recreation such as "dude ranching," and even 
some lumbering for a given tract of forest land; but the types of 
land control which will allow adequate balance among the many 
products of forest lands, including particularly the very important 
service of watershed protection, are limited. 

As the study progresses, the possible tenure types may be 
grouped and regrouped in many ways before the researcher feels 
that he has a classification he can defend. The following is an 
example of a possible classification: 

a. Government ownership, government operation 



AGENTS OF PRODUCTION 1 95 

(1) Up to the point of harvesting (same as b, 2) 

(2) Through harvesting 

b. Government ownership, private operation 

(1) Complete cycle of production and harvest 

(2) Private operation for harvesting only (same 
as a, 1) 

c. Private ownership, certain types of effective govern- 
ment control 

(1) Owner-operatorship 

(2) Some sort of "tenant" or other contractual ar- 
rangement with operators 

(a) Complete cycle of production and harvest 

(b) Harvesting only 

d. Private ownership, no government control 

(1) Owner-operatorship 

(2) Contractual arrangement with operators 

It will be unwise to try to apply sampling procedure and 
statistical analysis to this problem of classifying tenure types. 
The first need is for theoretical formulation of alternative classi- 
fication schemes. The case type of study will then be useful in 
sharpening this theoretical formulation and in finding empirical 
evidence of its adequacy. Leading owners and operators and 
other interested persons in the area will also be able to contribute 
ideas. 

5. Obtaining data on the relation of tenure types to manage- 
ment-goal achievement (13, 14). The next step is to make case 
studies of as many existing variations in tenure arrangements as 
time will allow. For example, if this study were to be attempted 
in the Pacific Northwest, a detailed review of the cooperative 
sustained-yield agreement between the U. S. Forest Service and 
the Simpson Logging Company at Shelton, Washington, should 
be very fruitful. Until recently there has been a tendency to 
doubt that sustained-yield forestry can operate satisfactorily under 
private ownership. The experience of some of the European coun- 
tries indicates that if the proper arrangements can be developed, 
with suitable public control to protect the public interest, or 
with perhaps some sort of partnership arrangement between the 
private company and the government, private ownership of forest 
lands may be most satisfactory, at least in some areas and for 
some types of forest enterprise. 

6. Evaluating trends in resource management by tenure type 
(jy) and trends in tenure type (jj). The researcher may want to 
investigate whether resource management is moving in the direc- 



196 RESEARCH IN THE ECONOMICS OF FORESTRY 

tion of the stated goals under present tenure systems. That is to 
say, the present systems may not have produced satisfactory 
resource management, but management may be improving, or, of 
course, may be deteriorating. Again, tenure arrangements may 
be changing, either in a direction favoring achievement of the goal 
or in some other direction. The student must distinguish between 
changes in resource management resulting from such a shift and 
those taking place within a stable framework of tenure. 

7. Evaluating interactions among tenure classes in their effect 
on resource management. For example, the small, independent 
private forest holding may be a destructive form of tenure in an 
area where such holdings predominate, but in an area where they 
are surrounded by public holdings or larger private holdings 
operated under progressive policies, their owners may conform 
to the general pattern of good resource management. 

8. Analyzing the directions of change in forest-land tenure that 
will promote achievement of resource-management goals. For 
describing the conditions under which various tenure types may 
be expected to promote achievement of goals, the synthetic method 
(see Chapter I, p. 26) is useful. Some of the conditions to be 
considered will be amount and kind of taxes; credit arrangements; 
organizations for fighting insects, disease, and fire; and other 
institutional arrangements to reduce the risks that enter so heavily 
into the cost expectations of private operators in long-run enter- 
prise. 

References. (1) Social Science Research Council, Advisory 
Committee on Social and Economic Research in Agriculture: 
Research in agricultural land tenure — scope and method; Social 
Science Research Council Bui. 20; 89 pp.; New York, 1933. (2) 
U. S. Dept. Agriculture, Forest Service: The proposed Kootenai 
sustained yield unit; 62 pp., processed; Missoula, Mont., 194?. 
(3) Helburn, Nicholas: Geography of the lumber industry in 
northwestern Montana; Univ. Wise, Ph.D. thesis, 105 pp., type- 
written; Madison, 1950. (4) Kelso, M. M.: Current issues in 
federal land management in the western United States; Jour. 
Farm Economics 29, 4, Pt. 2 (Proceedings), pp. 1295-1313; 1947. 
(5) Renne, Roland R.: Land economics; xiv, 736 pp.; New York, 
1947. (6) Stoddard, Charles H., Jr.: Some aspects of land tenure 
as related to forestry; Jour. Forestry 41, 2, pp. 141-142; 1943. 
(7) Stoddard, C. H., Jr.: Future of private forest land ownership 
in the northern Lake States; Jour. Land and Public Utility Eco- 
nomics 18, 3, pp. 267-283; 1942. (8) Mason, Earl G.: These 



AGENTS OF PRODUCTION 197 

cooperative sustained-yield units; Jour. Forestry 45, 10, pp. 735— 
740; 1947. 

36. DISTRIBUTION OF RIGHTS IN FOREST LAND— Raleigh Barlowe 

Purpose. To describe and trace the effects upon forest manage- 
ment of the distribution of rights in land between the land 
operator and others — rights of government, owners, tenants, cred- 
itors, contract users, laborers, the general public, and others. 

Definition and scope. The study of land tenure involves all the 
relationships established among men which determine their vary- 
ing rights in the use of land. These relationships can and do in- 
volve the holding and distribution of the large bundle of rights 
that are involved in the concept of property. Forest management 
refers to the manner in which the forest is used or handled, 
particularly as it affects the possibility of obtaining high, con- 
tinuing yields of forest products and services. 

Among the more important relationships that involve the dis- 
tribution of property rights in forests and forest lands and that 
affect forest management, the following might be listed: 

1. Full and less-than-full ownership. The owner in fee simple 
may exercise full and exclusive rights over the use of his forest 
land in those cases where his rights are not limited by mortgage 
or lien, by lease, or by contractual arrangement. The owner 
whose rights are limited to a life estate or are qualified by the 
undivided interests of others or by clouds on his property title 
may feel less free in his forestry managerial decisions. 

2. Mortgagor-mortgagee relationship. Mortgaging the forest 
property involves the transference of certain rights from the 
owner to the creditor. The exact nature of the creditor's claim to 
the forest and the extent of his right to participate in current 
management of the forest depend upon the provisions of the 
mortgage and the state laws relating to this subject. 

3. Owner-logger relationships. The allocation of management 
rights — supervision of marking, cutting, etc. — between the forest 
owner and the logger during the period when harvesting opera- 
tions are being carried on can vary considerably according to the 
terms of the contractual arrangement. 

4. Landlord-tenant relationships. The extent to which the land- 
lord shares use and management rights in his forest or woodlands 
with tenants or croppers, or the extent to which he reserves these 
rights to himself, is specified or implied in his leasing arrangement. 
The distribution of forest use and management rights between 



198 RESEARCH IN THE ECONOMICS OF FORESTRY 

landlord and tenant may be vague or specific, depending upon 
how detailed the lease is, whether it is oral or written, and the 
reliance placed upon customary leasing arrangements. 

5. Employer-employee relationships. Ordinarily a forest or farm 
laborer has no private rights in the operator's land aside from 
his right to a mechanic's lien for unpaid wages. Many operators, 
however, grant resident managers and workers certain use rights 
to forest and other lands as part of the perquisites of their jobs. 

6. Government-private relationships. The private owner has 
exclusive but not absolute use rights to his property. The govern- 
ment retains the right to tax, to condemn, and to exercise police 
powers over the private lands: to control fires, regulate cutting 
practices, quarantine areas, maintain order, zone land uses, etc. 

7. Public rights in private lands. In addition to the rights 
exercised by government, the general public has and exercises 
certain special rights in private lands. Important among these 
rights are those of enjoyment of scenery and the right to hunt, 
fish, and make recreational use of nonposted lands. 

Relation to the field. This study focuses attention on the role 
of the several types of forest property-right holders in jointly 
making the decisions which determine what kind of forest-land 
management will be practiced. It provides a basic analysis of 
functional aspects of tenure. As such, it is fundamental to topics 
37 and 38, which are concerned with the incidence of specific 
types of tenure in selected areas. 

Data needed. Three types of data are called for: first, informa- 
tion concerning the legal and customary arrangements affecting 
the distribution of rights in forest lands; second, data concerning 
the types and extent of the contractual arrangements actually in 
use; third, data relative to the types of forest management prac- 
ticed under varying distributions of property and use rights. 

Collection of data. 1 . Legal and customary arrangements affect- 
ing distribution of rights. The research required for the acquisition 
of this background need not involve field work or interviews. 
The information can be acquired through the study of law books, 
statutes, and court decisions. The layman who has an interest in 
these problems ordinarily can obtain an adequate background for 
further research without calling for legal counsel. In some cases, 
however, the legal details affecting the distribution of property 
rights may be so involved as to make it advisable to consult a 
competent legal authority. 

Although knowledge of the legal basis for the distribution of 



AGENTS OF PRODUCTION 199 

property rights can be acquired by library research, the law in 
operation represents not the legal statutes alone, but also the 
statutes and common law as interpreted by the courts. Thus, 
practical field experience and familiarity with case data often 
give an insight into the implications of these interpretations. 

Background studies of the influence of the law on the distribu- 
tion of property rights should emphasize several points of issue. 
For example, where leasing contracts or arrangements fail to make 
specific provisions relative to use of woodlands, what is the extent 
of the rights held by tenants, sharecroppers, or laborers over the 
use of farm forests? Can the owners insist upon certain woodland- 
management practices in return for furnishing fuel? 

Similar questions can be raised concerning the rights of creditors 
and bondholders. Does the presence of a mortgage mean that 
title to the property has actually passed to the mortgagee, to be 
restored only when the debt is paid; that the mortgagor retains 
title so long as he does not default on his payments; or that the 
morgage constitutes only a lien or encumbrance upon the property 
and not a transfer of title? State laws differ considerably in their 
interpretation of this point, and these differences may affect 
forest management. On this same point, one might ask if the 
sharing of rights by the creditor is such that he can prevent or 
encourage classification of forest lands for special taxation or in 
other ways prevent or encourage the operator's engaging in long- 
term forest-management programs. Other questions of legal inter- 
pretation can exert important effects on forest-land management. 
Among them are such questions as the rights of the holder of a life 
interest in a forest, the management rights of an owner over 
lands on which the timber-harvesting rights have been contracted 
to other parties, the management responsibilities of timber-harvest 
contractors, or the powers of the government to zone the use of 
forest lands or to set up management standards. 

2. Contractual arrangements actually in use. After determin- 
ing what the law is, it is logical to inquire into actual performance. 
Law sets the boundaries within which legal activities take place. 
But laws are usually general enough to allow individuals wide 
scope in working out their particular problems in the distribution 
of rights in forest properties. When the covenants or arrangements 
affecting the distribution of rights are formal and written, there 
may be little question concerning individual performances. Where 
the arrangements are oral or vague, custom or the common law 
may govern the actual distributions. In either event individuals 



200 RESEARCH IN THE ECONOMICS OF FORESTRY 

enjoy wide latitude in the ways in which they may distribute, 
share, and exercise their rights over forests and forest lands. 

Because of area and community differences in customary prac- 
tices, and because of the multitude of individual differences in 
property-right distributions, it is advisable that the student have 
close contact with the problem area. Actual contact with owner- 
ship and operation situations is almost essential to grasping the 
importance and nature of existing relationships. 

Data on ownership, leasing, credit, and contractual arrange- 
ments could be collected on a mass statistical basis. Generally 
speaking, however, this research approach probably would not 
work out as satisfactorily as a case or case-statistical approach. 
If the mass data or census approach were to provide complete 
coverage, it would be necessary to employ a large group of com- 
petent interviewers. A mail questionnaire dealing with a subject 
as complicated as this would probably be inadequate both in its 
coverage of the subject and in total expected returns. The same 
results probably could be secured in more complete form and at 
less expense through the sampling of a smaller number of cases. 

In the case approach the important question is, How are the 
rights distributed or shared by the operators and other holders? 
Once this situation is clearly visualized, the student is ready to 
start analyzing the impact that these arrangements have on 
forest management. 

3. Forest-management practices under varying distributions of 
rights. In the collection of data on forest-management practices 
(see 48a), emphasis should be placed not on the mere collection 
of facts but rather on the assembly of data that have meaning so 
far as the relationship between management and division of prop- 
erty rights is concerned. 

The case method is the most valid approach to use in the collec- 
tion of these data. This approach allows close integration and 
association of pertinent facts and preserves the logic in sequential 
relationships. Under the mass statistical approach the logic of 
these relationships, so easily observable in individual cases, is 
often destroyed, with the result that the data become less mean- 
ingful for analytical purposes. Ordinarily, therefore, the manage- 
ment-practice data will be gathered on the same properties selected 
as case studies under step 2, above. 

Regardless of the approach used in collecting data, care is 
needed to organize the facts in such a way that the relations 



AGENTS OF PRODUCTION 201 

between forest management and distributions of rights will be 
clearly discernible. For example, the data might be organized 
or presented to show that a high type of management was found 
on 90 percent of the lands held under condition A and that a 
management of lower quality was found on 75 percent of the 
lands held under condition B. This organization of the data 
would have considerably more meaning than a classification show- 
ing that 30 percent of the holdings were subject to management of 
a high type, 25 percent to management of an intermediate type, 
and 45 percent to inadequate management, and that the land 
area was equally divided between conditions A, B, and C. 

Analysis of data. Once the three types of data outlined above 
are collected, the student is in a position to determine for the 
area the relationships that exist between forest-management prac- 
tices and different methods of distributing property rights. 

In these analyses, emphasis should be placed on pointing out 
evidence of causal relationships. The interpretation and analysis 
of these data should be pointed at providing answers to questions 
such as: Does fee simple ownership favor or discourage a high 
type of forest management? How do varying credit and leasing 
arrangements affect management? What effect might the details 
of agreements between forest owners and loggers have upon the 
rights and duties of each party and upon the quality of the 
management given the forest property during the harvest period? 
What is the over-all relationship between systems of distributing 
property rights and quality of forest management? Are differences 
in standards of forest management primarily traceable to sharing 
of property rights? Or do these differences occur as the result of 
other conditions? 

References. The research worker in this field should acquaint 
himself with some general treatises on property and mortgage 
law. Examples: (1) Jones, Leonard A.: A treatise on the law of 
mortgates of real property; 4 vols.; Indianapolis, 8th ed., 1928. 
(2) Thompson, G. W.: Commentaries on the modern law of real 
property; 12 vols.; Indianapolis, 1 939-1 941. He might also wish 
to examine some more general texts such as (3) Kratovil, Robert: 
Real estate law; xxiii, 349 pp.; New York, 1946. Or (4) Hannah, 
Harold W.: Law on the farm; xvi, 399 pp.; New York, 1948. 

So far as research analysis is concerned, it is recommended that 
the worker read: (5) Salter, Leonard A., Jr.: Cross-sectional and 
case-grouping procedures in research analysis; Jour. Farm Eco- 



202 RESEARCH IN THE ECONOMICS OF FORESTRY 

nomics 24, 4, pp. 792-805; 1942. (6) Salter, L. A., Jr.: A critical 
review of research in land economics; 258 pp.; Minneapolis, 1948; 
especially Ch. III. 

37. FOREST-LAND OWNERSHIP AND ITS RELATION TO FOREST MANAGE- 
MENT — Lee M. James 

Purpose. To classify owners into groups that are significant 
with respect to forest management and to determine how much 
forest land they hold, to learn what kind of forest management is 
practiced by each class of owners, to determine attitudes of 
owners and other factors underlying their management practices, 
and to interpret the results in terms of public and private pro- 
gram needs. 

The present statement will be confined to studies of timber 
management. The approach described, however, may be applied 
to studies of other aspects of forest management, such as wildlife 
or watershed management, or to studies of forest management as 
a whole. The investigation may be repeated at intervals in the 
same area, possibly on the same sample holdings, for the purpose 
of determining changes and evaluating the effects of forestry 
programs. 

Definitions. The study area in mind is a large block of land 
consisting, at least, of a state or a large portion of a state. If not 
fairly homogeneous in respect to the conditions bearing on forest 
ownership and management, the study area may be subdivided 
into homogeneous regions. 

Forest-land ownership is defined as control of the legal rights 
to forest land in fee simple, regardless of whether such rights are 
accompanied by similar controls of the timber and subsurface. 
Criteria for owner classification may include: for private owners, 
size of holding, occupation, form of ownership, length of tenure, 
distance of owner from forest, and objective of management; and 
for public ownership, the agency administering the land. Size 
of holding is expressed in total land acreage or forest land acreage, 
preferably the latter. Owner occupation includes such groups as 
farmer — which may be further divided into types of farming — 
professional worker, businessman, wage earner, housewife, land 
speculator, and forest-products industry — again, divisible. Forms 
of ownership are individual, partnership, corporation, or estate. 
Length of tenure is the number of years in present ownership, and 
number of years in the same family may also be considered. Ob- 
jective of management includes, for example, production for 



AGENTS OF PRODUCTION 203 

owner's wood-using plant, growing timber for sale or farm usage, 
recreational use, and speculation in land and timber values. 

The rating of timber management (see 48a) is a qualitative 
evaluation of current management on each property as very in- 
tensive, intensive, extensive, etc. The rating may be arrived at in 
one broad generalization, or it may be based on some combination 
of separate appraisals of cutting practice, fire protection, and other 
factors which may be important. The weights to be assigned to 
each of the major elements in combining them into a manage- 
ment rating will vary considerably among forest regions. Rating 
timber management on the basis of forest condition — species 
composition, size of timber, volume per acre, and similar indexes — 
is misleading, because forest condition may reflect management 
by previous owners or management when the current owners' 
attitudes were different. 

Relation to the field. The proper shaping of public and private 
policies aimed at the general improvement of timber-manage- 
ment practices requires basic research in two broad fields of 
investigation. One of these is to learn through silvicultural and 
economic studies the best techniques for producing good timber 
abundantly. Enough work has been done in these studies to make 
clear many of the required steps in management that lie im- 
mediately ahead. The other broad field for research is to learn 
about the people, primarily the forest-land owners, who are re- 
sponsible for timber management — to learn who they are, how 
they differ from or resemble each other in their timber manage- 
ment, and why they are following their present practices. This 
is the more neglected field for research. 

Data needed. Data are collected for individual properties, then 
grouped by class of ownership. The following information is needed 
on those properties which are studied to determine who owns the 
forest land: name and address of owner, owner occupation, loca- 
tion of property, total land owned, forest land owned. For other 
purposes of the study, data for each property should include: 
(a) an evaluation of management practices, including supporting 
items such as owner's supervision and other controls of cutting, 
and kind and amount of organized fire control available; (b) 
owner's attitude toward timber management, including such ques- 
tions as, Does the owner burn his woods? Why? What concepts 
about timber management does the owner have? Does he recog- 
nize that his timber management could be improved? What are 
his explanations for the type of timber management he practices?; 



204 RESEARCH IN THE ECONOMICS OF FORESTRY 

and (c) miscellaneous influences on management, or what are 
commonly taken to be influences — owner's education, income, 
length of tenure, distance of residence or place of business from 
the forest, method of acquisition, amount of forest-land taxes, 
objective of ownership, management assistance available from 
public or private sources, available markets, practices of timber 
buyers in the area, educational programs under way and the 
length of time they have been in operation, etc. In respect to 
some of these data, the study may be oriented so as to evaluate 
existing programs of education or management assistance. 
Such factors as markets are considered in this study only so far 
as they relate directly to and serve to clarify the main independent 
variable, forest ownership. 

Obtaining the data. From county or other local governmental 
records and from inquiry among local officials and other informed 
persons, the location of property boundaries can be obtained, the 
name and address of each owner, total land owned in the property, 
and owner occupation. 

Only a small sample of the land area is needed. In one study of 
an area of 11,750,000 acres in central Mississippi, for example, 
a 2-percent sample, taken in 84 four-square-mile blocks, provided 
a standard error of 2 percent for the estimates of forest acreage 
held by the three largest classes of owners. Sample blocks may be 
selected at random or according to some fixed pattern of spacing. 
They may be selected within each county or at random over the 
whole study area. An alternative to area sampling, termed line 
sampling, involves drawing lines at regular intervals across a 
map showing property boundaries and determining the percentage 
of total line occurring within boundaries of each class of owner- 
ship. 

Forest land area in each property is not likely to be found in 
county records, but by transferring property boundaries to aerial 
photographs, the proportion of each property forested may be 
computed from a dot count. Forest land acreage held by each 
owner within the sample blocks can be expanded to the acreage 
it represents in the whole study area and total forest-land area 
computed for each class of ownership. 

The most useful classification of properties, at least for initial 
descriptive purposes, is likely to be size of holding within owner 
occupation. The accuracy of such classification made at the county 
seats may be checked subsequently in the field. Other criteria for 
classification — such as form of ownership, distance of owner from 



AGENTS OF PRODUCTION 205 

forest, length of tenure, or objective of ownership — may be con- 
sidered at a later stage in the study. 

Estimates of the total number of owners must be handled with 
caution, since a large holding has a greater chance of appearing in 
the sample than a smaller holding. This difficulty may be mini- 
mized in area sampling by counting only those holdings some 
fixed point of which — such as the northeasternmost corner — falls 
within the sample blocks. In line sampling, the number of owners 
counted in each size class requires correction (see Hasel and Poli, 
cited). 

To inquire into management practices and the factors influenc- 
ing them, a smaller sample of forest-land owners and their proper- 
ties may be taken than that used for area determinations. The 
main problem is not so much the size of the total sample as its 
allocation among the different classes of owners. To provide a 
significant sample, small classes of owners may require a larger 
percentage sampling of properties than do the larger classes. 
Once the method of apportioning the subsample to owner classes 
is decided upon, individual owners and properties should be chosen 
at random, perhaps within strata such as geographical subdivisions 
of the study area. If the subsample can be limited to the sample 
blocks, field work will be simplified, since maps showing property 
locations will be at hand from the previous phase of the study. 

When selected owners have to be dropped for any reason — 
because the forest property is less than an acceptable size, or 
because owners could not be traced — alternative owners who are 
selected in advance for such eventualities should be consulted 
instead. Mail questionnaires are not often satisfactory, primarily 
because of the failure of many owners to reply and the difficulty 
of getting correct answers by mail; but questionnaires should be 
mailed to owners who cannot be reached otherwise. 

Some interview questions aimed at discovering miscellaneous 
influences on forest management may be asked directly. These 
questions include length of tenure, distance of residence or place 
of business from the forest, and amount of forest-land taxes. 
Other questions, particularly those dealing with attitudes, may 
require an indirect approach. Because of the problems of inter- 
pretation that may arise, it is essential that the analyst himself do 
a large share of the field work. In some cases inferences drawn 
from answers can be more valid than the answers themselves 
taken at face value. For example, the expression of vigorous 
opposition to forest fires may indicate an owner's awareness of 



206 RESEARCH IN THE ECONOMICS OF FORESTRY 

the social disapproval of fires more than it reflects his own at- 
titude. The design of an interview and the phrasing of attitude 
questions fall in the fields of psychology and sociology; reference 
should be made to the techniques developed in those fields. 

Analysis. If the field forms have been drawn up so that answers 
are coded in advance, transferring data to punch cards will be a 
simple operation. However, the forest land owned appearing on 
an interviewed owner's card should be not the forest land actually 
owned, but the total forest land represented by the owner as an 
item in the sample. An expansion factor is applied to the forest 
area held by each owner so that the total for all the owners 
sampled in a particular class will equal the total forest land held 
by the whole class of ownership in the study area. On any card 
sort, the expanded areas permit tabulations which will apply 
directly to the whole study area. 

Analysis will take the form principally of comparing various 
items in regard to the distribution of forest-land area by manage- 
ment rating — i.e., the percent of the total falling in very intensive, 
intensive, extensive, or whatever classes are used. First, the dis- 
tribution of area under each management rating should be tabu- 
lated by size of holding within owner occupation class. Then, 
with a view to finding significant differences in management- 
rating distribution, an examination should be made of the dis- 
tribution of area by management ratings in items such as the 
amount of forest-land taxes, length of tenure, distance of owner 
from forest, objective of ownership, and various attitudes toward 
timber management. In all these comparisons, data should be 
segrated by class of owner wherever such segregation will result in 
a substantially different distribution of forest area by manage- 
ment rating. 

Cause and effect cannot often be demonstrated, but relation- 
ships can. For example, the tabulations may permit the conclusion 
that large holdings are associated with better management than 
small holdings. The important analytical job in each case is to 
explain, as far as possible, why the observed relationships exist. 

Some items do not require comparisons with management rat- 
ings or any other items. In this category are included opinions 
about the primary causes of forest fires, the reasons why land- 
owners burn their own forests or their fields, and owners' ex- 
planations for their other timber-management practices. Some 
of these items will be compiled by number of owners; for other 
items, a compilation by forest land acreage will prove more useful. 



AGENTS OF PRODUCTION 207 

In the light of the findings of analysis, corrective measures that 
might be taken by public and private agencies for the improve- 
ment of timber management can be outlined. 

References. (1) Barraclough, S. L.: Forest land ownership in 
New England; Harvard University, Ph.D. thesis, xi, 269 pp., 
mimeographed; Cambridge, 1949. (2) Stoddard, C. H., Jr.: Future 
of private land ownership in the northern Lake States; Jour. 
Land and Public Utility Economics 18, 3, pp. 267-283; 1942. 
(3) Poli, Adon, and D. T. Griffith: Forest land ownership in 
northern Mendocino County, California; Cal. Forest and Range 
Exp. Sta., Forest Survey Release 5; 49 pp., processed; Berkeley, 
1948. (4) Hasel, A. A., and Adon Poli: A new approach to forest 
ownership surveys; Land Economics 25, 1, pp. 1-10; 1949. (5) 
Folweiler, A. D., and H. J. Vaux: Private forest land ownership 
and management in the loblolly-shortleaf type of Louisiana; Jour. 
Forestry 42, 11, pp. 783-790; 1944. (6) Chamberlin, H. H., L. A. 
Sample, and Ralph W. Hayes: Private forest land ownership and 
management in the loblolly-shortleaf type in southern Arkansas, 
northern Louisiana and central Mississippi; La. Agr. Exp. Sta. 
Bui. 393; 46 pp., processed; Baton Rouge, 1945. (7) James, Lee 
M.: Determining forest landownership and its relation to timber 
management; Jour. Forestry 48, 4, pp. 257-260; 1950. (8) James, 
Lee M., William P. Hoffman, and Monty A. Payne: Private 
forest land ownership and management in central Mississippi; 
Miss. Agr. Exp. Sta. Tech. Bui. 23\ 3% PP-; State College, 1951. 

38. EFFECTS OF CREDITOR POLICY ON FOREST MANAGEMENT 

To evaluate the effects of creditor policies on forest management 
and to interpret these effects in terms of the security of forest 
credits. 

An example of research under this head is a study of the policies 
of the Federal Land Banks. Two or more Bank districts are ob- 
served, which offer contrasting situations. What is the extent of 
loans in which forest land figures as security? What are the types 
of borrowers and for what purposes have they negotiated the 
loans? For what terms are the loans running and at what rates of 
interest? What conditions, regarding the borrower and the status 
and management of the forest land, must be met before a loan can 
be granted? What proportion of applications has been rejected 
because of failure to meet these conditions? What forest-manage- 
ment practices are stipulated at the time a loan is negotiated, and 
how are they determined? What type and frequency of control 



208 RESEARCH IN THE ECONOMICS OF FORESTRY 

over forest management is exerted by the lending agency during 
the life of the loan? What intensity of forest management results, 
and how does it compare with that on other properties? What is 
the extent of defaulted loans, and why have defaults occurred? 
What part of the differences in forest management and credit 
security between Bank districts is attributable to Bank policies? 
How may Bank policies be altered so as to increase the benefits 
from forest management and make credits more secure? For 
relevant material, the reader is referred to topics 26, 37, 48. 



CHAPTER IV 



The Management of Forests 



Studies of the agents of forest production have been explored in 
Chapter III. The present chapter is concerned with research into 
the combination of these agents in growing or producing — and in 
offering for sale or otherwise making available — standing timber, 
forage, wildlife, recreational values, watershed services, and other 
basic products of the forest. The process of producing and making 
available one or more of these forest products is here termed forest 
management. The limits of the study of forest management are 
considered to be set where the study of logging as a manufactur- 
ing process or of other manufacturing production (Chapter V) 
or of transportation or exchange (Chapter VI) or of consumption 
(Chapter VII) begins. 

The fact that it is concerned with combinations of the agents of 
production is what distinguishes forest management research, as a 
part of the economics of forestry, from such closely associated 
lines of research as silvicultural studies — a part of the biology of 
forestry — and forest products studies — a part of forest engineering. 
Research in forestry biology or engineering seeks to discover how 
and why trees, machines, and the like perform under various 
conditions. Research in the management of forests is aimed at 
learning the quantities, qualities, and values of inputs and outputs 
involved when these trees or machines are combined with the 
other agents of forest production to make goods and services for 
satisfying human wants. The combining of agents takes place 
within firms, or businesses. These firms may be either private or 
public, and may be operated for profit or for other purposes, but 
firms of some sort are the agents through which all forest manage- 
ment takes place. The management of forests in this sense is the 
hub of the forest-economics wheel (Chapter I). 

Although forest management takes place within individual 
firms, the subject of forest management has not only individual- 
firm aspects, but group-of-firms or industry aspects as well. Its 
industry aspects are most clearly in evidence in the problems of 
supply, which are in the last analysis coextensive with the in- 
dustry. 



2IO RESEARCH IN THE ECONOMICS OF FORESTRY 

Forest management, though often aimed at single products, 
notably timber, usually results in several products. It is the 
nature of a forest that its various goods and services can be 
created together, and often are so created, whether purposefully 
or not. The economics of producing the several forest products — 
some of which are mutually compatible, others not; and some of 
which have private value while others have primarily social value 
— may be highly complex. An attempt is made in the present 
chapter to recognize some of the problems of multiple-product 
forest management. The bulk of the topics, however, deal solely 
with timber as the principal case in point or the one about which 
the most is known. 

The chapter begins with the process of combining the agents of 
production. The simpler processes involving values of a private 
order, the enterprise aspects of forest management, are considered 
first, and are followed by a brief treatment of some of the related 
special financial problems. Then the more complex processes in- 
volving the social interest are taken up. The chapter continues 
with the questions of appraising forest capital values created 
through management. Finally, it concludes with the subject of 
forest-products supply — the outcome of forest-management firms' 
activities and the first major link in the economic chain leading to 
the consumer. 

ENTERPRISE ASPECTS OF FOREST MANAGEMENT 

The topics in this section are oriented to the problem of com- 
bining the agents of forest production so as to maximize the net 
returns to the individual firm. Thus they are concerned with those 
values on which the firm can capitalize. The problem is analyzed 
primarily for the private firm, though the analysis is applicable, 
with appropriate changes and reservations, to the public firm as 
well. Timber products receive the main emphasis; secondary con- 
sideration is given to other products whose values may be cap- 
italized by the individual business. 

The section opens with three closely related topics on the pro- 
curement of receipts and expenditures data. Procurement of such 
data is essential, first, for determining the profitability of forest 
management in given instances, and second, for evaluating vari- 
ous forest-management alternatives. To procure the data in usable 
form, considerable analysis and interpretation may be required; 
consequently these studies, of value primarily in further research, 
are also classed as research on their own merits. 

How to carry out the job of evaluating forest-management 



MANAGEMENT OF FORESTS 21 1 

alternatives is the subject of the remaining topics. The first in the 
group discusses the problem as a whole, and is followed by topics 
devoted to specific examples of alternatives calling for evaluation. 
The last topic returns to the general consideration of all alter- 
natives, but for a specific type of business, the farm. Here both 
forest and nonforest production alternatives are involved, and in 
this respect the topic is akin to those in Chapter III that con- 
sider alternative land uses — e.g., topic Jia. 

39. HISTORICAL COSTS OF PRODUCING STANDING TIMBER— Sam Gutten- 
berg 

Purpose. To determine the costs incurred in the production of 
stumpage on given properties or under given systems of manage- 
ment, to classify these costs in such a way as to make them useful 
in analyzing the economics of timber production, and to indicate 
the significance and limitations of the data. 

Relation to the field. Data on historical timber-growing costs 
are of value primarily as a basis for estimating future costs. Fuller 
knowledge of the probable costs of growing stumpage is necessary 
if capital is to be directed into forestry in the right places and 
amounts. Good cost data are needed both in weighing alternative 
timber-management measures (42) and in forecasting the total 
net return to the timber-growing business {41). 

Compiling the data. To compile meaningful records of timber- 
growing costs, data are required on the costs themselves, on the 
crop in whose production the costs were incurred, and on the key 
variables — in the forest and in the business — that determine the 
crop and the costs. Cost data include all costs of growing timber 
on the area in question (for some enumeration of such costs, see 
40). Crop data include the volume of all timber grown, whether 
harvested or not, fully identified as to species, size, grade, and 
dates of harvest. As for the independent variables, forest data 
include acreage; soil; topography; climate; location with reference 
to transportation routes, labor, and markets; standing-timber 
inventory at the start of the cost period and at subsequent inter- 
vals as needed; character of the timber as to species, grade, and 
diameter distribution; and the like. Business data include type of 
organization, such as public, corporate, or individual; whether the 
tracts are operated mainly for profit or as demonstration or re- 
search areas; whether timber is the primary or a secondary source 
of income; whether the forest enterprise is integrated with wood 
processing or independent; and so on. 

Some information is obtainable outside the particular forest 



212 RESEARCH IN THE ECONOMICS OF FORESTRY 

properties, from maps, weather records, tax records, and public 
surveys of the forest. The bulk of the data, however, will come 
directly from the properties themselves in the form of current 
observations and historical records. The organization of such 
records for an experimental area is discussed in topic 40. For 
other areas, the investigator will use such regular business records 
as are available or special records set up as a part of the study. 

Regular business records must be used with caution. Accounting 
procedures usually are oriented toward income-tax determination 
rather than economic analysis, and the records may be usable only 
partially or not at all. However, fruitful results are often possible 
from regular business records if the distinction between account- 
ing and economic costs is kept constantly in mind. Business 
records usually permit ad valorem taxes to be readily segre- 
gated and properly expressed (see below). On the other hand, 
the cost of hardwood control may appear in the business record 
in money terms; further search of the forest working plans may 
reveal the acreage on which the money was spent. It would not 
be most useful, however, to express this cost in terms of dollars 
per acre. The best way to state this cost would be in terms of the 
man-hours of effort expended to deaden a given quantity of hard- 
wood timber. 

Generally speaking, costs expressed in dollars are not as widely 
useful as costs expressed in real terms, such as hours of men and 
equipment of the various classes, and units of materials and sup- 
plies by type. Costs in the latter form have the advantage of being 
precisely identified and are always convertible to dollars. Where 
possible, therefore, costs should be compiled in real as well as 
monetary terms. 

Costs are always most useful if compiled in full detail. This 
means keeping separate the various cost objects, such as surveys 
and fire protection; the categories of cost, fixed and direct; the 
time periods; the forms of cost, such as classes of labor; the land 
subdivisions or other business units to which the costs are charge- 
able; and any other units or categories that may permissibly be 
kept separate. In general, it is not the aggregate cost of growing 
timber that the user of cost data will need, but the individual 
expenditure streams forming the total. 

Attention to the individual expenditure streams should not, 
however, be carried to the point of allocating costs unjustifiably 
to units of output. In this connection there is a marked difference 
between most direct (variable) costs and fixed (overhead) costs 



MANAGEMENT OF FORESTS 213 

Direct costs are of great use in judging the profitability of 
particular operations or steps in production: if the direct cost is 
less than the direct (marginal) revenue, the operation or step is 
profitable. Direct costs are therefore best expressed per unit of 
output. 

Fixed costs, on the other hand, do not enter into the judgment of 
profitability of particular operations or steps, and need not be 
expressed per unit of output. Furthermore, they ought not be so 
expressed, since they do not vary with output, and therefore are 
not necessarily applicable to any other operation or period of time 
if put upon a per-unit-of-output basis. Attempts to allocate costs 
between joint products are similarly inadvisable. 

Examples of fixed costs — by far the greater costs in timber 
growing — are ad valorem taxes on land, salaries of the head- 
quarters administrative staff, and outlays for road construction. 
Such costs are incurred in common by all the timber grown in the 
year and conceivably in other years as well. 

Fixed costs should, however, be compiled on a basis of some 
unit. In the case of the taxes, the unit is the acre; for the ad- 
ministrative salaries, it is the business as a whole; and for the 
road, the mile. Strictly speaking, road-construction costs are 
divisible into those that are direct and those that are fixed with 
respect to road output, and only the former should be expressed 
per mile, the latter being stated for the business as a whole. 
These distinctions are necessary in considering additional road 
construction; however, they are of diminishing importance as the 
process becomes further removed from stumpage production 
proper. 

The question of time has two aspects in relation to the collection 
and compilation of cost data. First, attention must be given to the 
use to which the data are to be put, so that proper selection of 
annual, seasonal, daily, or some other time basis can be made. 
Second, the length of the observation period must be considered. 
As young timber matures or unmanaged forests are placed under 
regulation, costs may be expected to change. It may, therefore, 
be desirable to obtain cost data for a fairly long period of years 
in order to represent a cutting cycle or rotation, or to establish 
possible trends. 

The conditions giving rise to the cost must in every case be 
described with great care. Such description is essential if the 
data are to be used outside the particular property and time 
period from which they came. 



2I 4 RESEARCH IN THE ECONOMICS OF FORESTRY 

40. MANAGEMENT RECORDS FOR RESEARCH FORESTS— R. R. Reynolds 

Purpose. To set up a system of records in which the costs and 
returns of an experimental tract may be analyzed and kept 
current. 

The management of forest land for continuous tree crops is a 
relatively new business in the United States. In many cases 
adequate record-keeping systems have not as yet been worked 
out, even though it is known that good records are as important 
to the success of the business as adequate financing. 

In forest-management research, good records are important 
because they provide the facts whereby the limit of profitable 
intensity and the relative profitableness of alternative manage- 
ment measures being tested can be determined for experimental 
conditions, and inferences can then be drawn for commercial 
forest conditions. Records indicate the reasons for success or lack 
of success; good records inspire confidence in the results of re- 
search. 

Since the problem is such a large one, it is proposed to limit this 
discussion to some of the principles of setting up a record-keeping 
system for use in timber-management studies. Likewise, the dis- 
cussion will be limited to records of tree growing and will exclude 
logging and processing so far as possible. 

Research records needed. The purpose of a study determines 
what records to keep. Records for some studies can be very 
simple. This would be true, for example, of studies concerning the 
amount of pulpwood produced in 30 years from similar sites 
planted at various spacings. If, however, the aim were to learn 
which spacing produced pulpwood at the least cost per cord at 
30 years, more records would have to be maintained. And if, in 
addition, information were sought concerning the actual cost of 
the wood per cord in each case, still further records would be 
needed. The problem of record keeping becomes more compli- 
cated yet in long-time studies involving the net returns from 
forests of mixed species, ages, and conditions. 

Although there is a very real danger of setting up too costly 
and complicated a set of records, there is likewise a danger of 
attempting to keep the records too simple. By way of example, 
there are considered below some of the important elements of 
a well-rounded set of records aimed at determining and explaining 
net returns from a forest property over a period of years. 

Timber account : orginal and subsequent inventories. Except 
in new plantations, most management studies deal with forest 



MANAGEMENT OF FORESTS 21 5 

stands already in existence. An original inventory, therefore, is 
necessary before the study gets under way or the stands are placed 
under management. Careful planning of this inventory may save 
months of effort later when it becomes necessary to work up the 
results, because many of the decisions made before the first tree 
is cruised affect the study throughout its life. For example, it is 
best to use the same volume table to measure the volume of the 
pre-study inventory that will be used throughout the life of the 
study. The same standards of utilization should be used at the 
time of the first inventory and 20 years later. The same species 
breakdown is best followed throughout the study. Likewise, if 
quality of product is or will become an important consideration, 
log or tree grades should be established at the time of the first 
cruise and used unchanged thereafter. This rule of consistency 
should, if possible, be observed because any changes in utilization 
or other standards during the study may result in paper changes 
in volumes or values — changes not brought about by growth or 
management practices. 

It is realized that, over the course of a study, conditions may 
change much more than could be foreseen, so that adjustments in 
the original standards of measurement and description may be 
necessary. Hence it is important to take the original data in terms 
of such basic units and standards as lend themselves to this sort 
of adjustment. 

1. Species, types, and stand classes. Recognition should be 
given to as few species groups, forest types, and stand classes as 
possible — only those for which distinct need can be foreseen. 
A fine breakdown not only increases the record-keeping job tre- 
mendously, but will also bring about the need for later combina- 
tions and revisions of records. As cutting is done or time passes, 
many temporary types or stand classes will merge, and it will not 
be possible to separate them. There is, of course, good reason for 
keeping separate records for some temporary types on some 
studies. 

1. Accuracy of measurements. The accuracy of the statement of 
results of any management study depends greatly upon the ac- 
curacy of inventory and reinventory. For example, very few men 
can use the biltmore stick or can estimate diameters ocularly 
without bias. Either calipers or a diameter tape is usually neces- 
sary. Likewise, accuracy is called for in estimating number of logs 
or bolts in the tree. In large-scale studies it is usually not practical 
to measure the merchantable lengths of all trees with an instru- 



21 6 RESEARCH IN THE ECONOMICS OF FORESTRY 

ment. Consequently, ocular estimates are necessary. These should 
be made, however, only by men who are skilled in this type of 
work, and the estimates should be checked frequently with in- 
struments. Over- or underestimation at the time of one inventory 
and the opposite at the time of a second inventory may result 
in records that show no growth at all for the period or that show 
twice the amount of growth that actually has taken place. 

3. Merchantable limits. Under most conditions it is important 
that a record be maintained for small trees of all species. The tree 
that is considered too small to be merchantable today may be 
merchantable tomorrow, and the record that is not obtained at 
the start of the study cannot be picked up successfully later. 

It is equally important to maintain uniform merchantability 
limits over the life of the study — to set a top diameter and cruise 
to this diameter in each inventory. To provide for possible changes 
in utilization, it is usually desirable to set this top diameter 
higher than the merchantable limit at the beginning of the study. 
The unmerchantable portion then can be recorded separately in 
the early cruises. If this portion of the stem becomes merchant- 
able in later years, a record of the original volume of this class of 
material will be available and can be included in the calculations 
of growth without the need for major adjustments. Again with 
merchantability changes in view, a record of diameter and height 
of currently unmerchantable but sound trees should be taken, 
and such items as form class and bark thickness should be re- 
corded. 

Usually the relation of merchantable length to tree d.b.h. will 
change as a result of management, as rough, short, defective trees 
are removed and trees of better form developed in their places. 
However, where average tree form is not expected to change, 
the problem of changing merchantable limits may be avoided by 
using local volume tables based upon d.b.h. only. 

4. Expression of volumes. Most users of forest-research results, 
whether laymen or foresters, are accustomed to thinking in terms 
of board feet, cords, and other common units when speaking of 
timber volume or timber growth. However, to keep records in 
the common units involves many difficulties — for example, dif- 
ficulties associated with the diversity of log rules, and difficulties 
of expressing growth in meaningful terms where ingrowth may 
make up a large and variable proportion of total saw-timber 
growth. 

To help get around such difficulties, it is suggested that the use 



MANAGEMENT OF FORESTS 217 

of cubic-foot volume be seriously considered. Stand and species 
volumes and growth may be computed entirely in cubic feet, and 
such figures would be those on which research results are weighed. 
For the use of the man who wants his figures in board feet or 
cords, converting factors can be set up that will permit rapid 
conversion from cubic feet for any tree-size grouping and for any 
log rule. 

5. Quality standards. Quality is as important in timber growing 
as in the production of any crop. Often the quality that is pro- 
duced will mean the difference between very good returns and 
practically no net returns at all. Yet to date very little attention 
has been paid to the measurement of this important item. In 
many parts of the country timber products are bought and sold 
on a lump-sum basis or at so much per unit of volume, and only 
minor attention is paid to grade. Even research figures on growth 
or production may be shown only as so many hundred cubic 
feet or thousand board feet, with little apparent thought given to 
the fact that in one case the material may be worth $5 per thou- 
sand board feet, while in another case an equal amount of produc- 
tion per acre per year may be worth $40 per thousand. Although 
the market as constituted today may not reward an owner fully 
for the quality timber he grows, it is wise to assume that the 
market will eventually recognize quality, and to set up the re- 
search records accordingly. 

Though records of timber quality increase the job considerably, 
such records are necessary in weighing the advantages of one 
management procedure over another. Log- or tree-quality grades 
have been proposed or set up for most regions and species, and it 
should not be difficult to adapt one of these sets of rules to any 
locality. Where such grading rules have not been developed, they 
should be prepared before starting the study. 

If quality is measured by the use of tree grades, all that is re- 
quired is a few new headings in the field tally sheet and the office 
record. If log grades are used, a more complicated field record is 
required, providing for tallying log grade by log position in the 
tree. This is necessary since log volume decreases with ascending 
log position, and because most of the higher-grade material may 
be concentrated in the lower logs. The office record need not be 
any more complicated for log grades than for tree grades. Where 
log grades are used, volume tables must be constructed so as to 
show the volume in the first log, second log, etc., for trees of each 
diameter class. 



21 8 RESEARCH IN THE ECONOMICS OF FORESTRY 

6. Percent cruise. If the compartment or study area is large — 
say, more than 200 acres — a 5-, 10-, or 20- percent cruise may give 
figures as reliable as needed. Most compartments or study plots, 
however, are relatively small, so that to get figures within an 
acceptable limit of error requires a very high percentage cruise. 
Here a 100-percent cruise is to be recommended. In any case, 
where there is much variability from one acre to another, and 
where exact compartment records are needed, the 100-percent 
cruise is to be preferred. Such a cruise gives much more confidence 
in the growth and value data. 

7. Reinventory. Most research compartments are remeasured at 
relatively short intervals in order to obtain data on growth. These 
inventories also provide information on growing stock upon which 
to base calculations of the next cutting. The record needs to be of 
the same kind and intensity as the original inventory in order to 
determine accurately what has taken place since the original 
inventory. Reinventories during the growing season make it neces- 
sary to assign a part of the current year's growth to the last growth 
period and the remainder to the period that is to follow. To 
eliminate this troublesome point, reinventories may be made dur- 
ing the dormant season. 

Where compartments are being handled on a regular cutting 
cycle, each reinventory should be made at the end of a cycle, just 
before the cut. Thus, a compartment worked on a 5-year cutting 
cycle should be reinventoried every 5 years. 

In the reinventories, as well as in marking for any cutting that 
is to follow, a record is needed of the stand then present and of the 
portion of the stand that is to be removed. This record is later 
supplemented by information on unmarked trees damaged in 
logging. 

The field record of the reinventory, as well as of any marking for 
cutting that is to be done, should be computed in the same manner 
as the original inventory, and summaries entered in the ledger for 
the compartment or study area. If all inventories are entered in 
black, and all marking data in red, with separate lines for each 
inventory, it will be possible to tell at a glance what has happened 
to the stand since the study was started. 

Sales account : harvest cutting and scaling records. All records 
described up to this point are based on standing-tree estimates. 
Because estimates are usually made to the nearest standard log or 
bolt or major fraction thereof, because shorter and longer logs are 
often cut in order to increase utilization and to place as much as 



MANAGEMENT OF FORESTS 219 

possible of one grade of material in a log, and because crook and 
defect may not always show up in the log as expected, a scaling 
record is necessary to determine the actual yield of timber prod- 
ucts. The scaling record is a record of the volume of logs or 
bolts by grade and size — including the number of poles and piling 
by length and class, the cords of pulpwood, and the cords or 
pieces of other products — after the trees have actually been cut 
into the products. These records should also be expressed in cubic 
feet as well as in the accepted sale unit of measure. 

The scaling records can be entered upon a second ledger sheet 
for the compartment or study area. Together with data on the 
prices and sales values of the products, they provide a running 
record of the gross returns from timber management. 

Since market prices may fluctuate widely from year to year, 
comparison of two or more treatments or methods of management 
often needs to be made on some basis other than actual value of 
sales. Here, average prices over the study period, or some form of 
"normal" price, may be applied to the scaling records. In some 
cases dollar values may be by-passed altogether, and total volume 
by quality of product used as the basis for comparison. 

Results in some cases cannot be meaningfully stated or com- 
pared without taking into account the ultimate product values 
and the logging and other conversion costs that determine stump- 
age value. For example, some silvicultural methods yield logs of 
large size and high grade. Small logs are expensive to log and mill 
per thousand feet, yet mill owners often buy logs not on grade or 
size but strictly at so much per unit of volume. Under such con- 
ditions, in addition to the sales record showing actual dollar 
returns, it may be well to keep a man-hour and machine-hour 
cost record covering the logging or logging and milling of the 
products produced. Such information, together with information 
on ultimate product values and grade and average size of logs, 
will permit the computation of acceptable realization values, and 
will give a more accurate measure of results than will actual sales 
value alone. 

Unless the study stands are started by planting at the time the 
record is begun and are clear-cut at the time the study ends or the 
comparison of treatments is made, one other record is necessary 
to the proper evaluation of gross returns. The increase or decrease 
in volume, quality, and average size of growing stock in the 
stands over the period of the study must be accurately measured 
and the consequent value increase or decrease must be closely 



220 RESEARCH IN THE ECONOMICS OF FORESTRY 

approximated before computation of returns can be attempted- 
An accurate measure of this value change is just as important as 
an accurate record of sales. The timber account provides the 
facts needed. 

Operating expense account. Under the operating expense ac- 
count are included such annual charges as cruising for special 
items; maintenance of roads necessary to operation of property; 
planting and stand improvement if a yearly job; cost of super- 
vision, marking labor and material, scaling labor, etc.; taxes, at 
going rates on similar property; and fire protection, at going rates 
on similar property. The cost of an owner's services at reasonable 
rates is a proper charge against expense of operation, but not 
from an income-tax standpoint; a separate record should there- 
fore be kept for services that might be performed personally by 
an owner. Costs attributable to research should not be included. 

Investment account. To express the net annual return from the 
timber-growing enterprise, it is necessary either to recognize the 
cost of capital as well as other expenses, or if capital investment is 
not a variable in the research problem, to determine the rate of 
return on the investment. In either case, it is necessary to know 
the capital investment. For this purpose, an investment account 
must be set up. 

In this account, the entries should be those that would rea- 
sonably be made by a timberland owner. For example, if such an 
owner were a wise investor, he would probably take advantage of 
a favorable land market in acquiring his property. 

Careful attention, too, needs to be given to make sure that the 
investment account does not include research values or costs. 
For instance, expenditures for research quarters, research equip- 
ment, and other similar items should be excluded. Likewise, the 
cost of extra roads or fire lines that have been built to protect 
research values should be excluded. 

Below are listed a few of the items that may be included in the 
investment account. 

i. Land and timber. These should be entered at the price 
typically paid by landowners {34). 

1. Roads. Cost of construction of the minimum number of 
roads necessary to the operation of the holding is a proper charge 
against the investment account. Where sufficient state and county 
roads are normally already present, no entry need be made for 
roads unless improvement of existing roads or the construction of 
some high-class main haul roads is typically necessary. On per- 



MANAGEMENT OF FORESTS 221 

manent operations a charge for road depreciation is usually not 
made. Maintenance is, of course, chargeable in the operating 
expense account. 

3. Structures. The size of this item will depend upon the size of 
the timber holding. A small property might have a tool or car 
storage shed, but no more. The large holding might have dwell- 
ings, equipment sheds, repair shops, etc. 

4. Equipment. The cost of any equipment to be used for a 
substantial period of time is best charged to the investment 
account and depreciated over the years of useful life. To operate a 
tract only for timber growing may require a car or pickup truck, 
but no heavy equipment. 

5. Planting and stand improvement. If this work were all done 
at one time it probably would be a proper charge to the invest- 
ment account. However, if it is an annual job, it seems best to 
make the charge to the operating expense account. 

6. Cruising and management plan. Before a forest property can 
be placed under management, a cruise and management plan are 
usually necessary. The cost of this preliminary cruise and plan, 
except when chargeable especially to research, is a proper charge 
against investment. In other words, the cost of a 5- or 10-percent 
cruise is usually a reasonable charge. The cost of 100-percent 
research inventories is not. The cost of compiling the 5- or 10- 
percent inventory and writing a management plan is acceptable, 
while the cost of the involved research management plan is not. 

41. POTENTIAL COSTS AND RETURNS OF TIMBER GROWING— Percy M s 
Ban- 
Purpose. To estimate the potential costs and returns of timber 
growing in an area, with particular reference to the profitability 
of permanent management to a private timberland owner. 

Definition. Potential costs and returns may be defined, for pur- 
poses of the present discussion, as the most satisfactory combina- 
tion of investment, risk, operating expenses, and sales revenues 
which competent management can develop in the future. 

Scope and relation to the field. Analysis of costs and returns 
may be applied to a specific property in order to estimate its 
potential profitableness if managed for timber production, or 
comparative estimates may be developed for a series of tracts for 
the purpose of selecting the one of maximum earning power. 
Appraisal of future costs and returns is an essential element of 
business enterprise, either individual or corporate. Such an esti- 



222 RESEARCH IN THE ECONOMICS OF FORESTRY 

mate is necessary before a prudent decision can be made to 
establish a new business, and it is likewise necessary at regular 
and frequent intervals in the maintenance of an existing enter- 
prise in order to adjust operations in the light of changing con- 
ditions so as to maximize the likelihood of future success. 

A business enterprise is profitable when its management is 
skillful in recognizing circumstances where returns may exceed 
costs, and effective in translating such opportunities into reality. 
Economic studies of future costs and returns should therefore not 
be directed towards forecasting expenses and revenues in absolute 
monetary units, but should be concerned, rather, with analysis of 
the factors of management, production, and distribution to the 
end that these may be so integrated as to attain in highest degree 
the objectives of the enterprise. 

In theory, if an appraisal indicates that timber growing may be 
profitable, an investor is influenced thereby to transfer his funds 
from a less attractive undertaking; or if it appears that the rate 
earned may be inadequate, capital may be withdrawn from forest 
enterprises for reinvestment in more promising alternatives. In 
practice, forest enterprises often exist, or are undertaken, because 
of such things as business tradition, family heritage, professional 
interests, or the requirements of allied industries. These factors 
are likely to become more significant in the future. 

Timber growing has seldom been undertaken in the United 
States as an independent business. Increasing numbers of timber- 
land owners have found it advantageous to develop their own 
logging and milling operations, and manufacturers of lumber, 
paper, and plywood have purchased their own timberlands. The 
integration of timber growing, harvesting, and manufacturing has 
become especially complex in recent years as a result of new 
processes in wood utilization. Under such circumstances the " re- 
turns" from timber growing lose their distinctive identity, and the 
financial objective is to realize a satisfactory return from the 
capital invested in the integrated business as a whole. Accounting 
controls may be maintained in order to determine the costs of 
the woods departments or to allocate annual departmental budg- 
ets, but these methods will not necessarily reflect the actual costs 
of growing the timber which is cut. 

Factors affecting profit outlook. Appraisal of the potential costs 
and returns of timber growing must be based on recognition and 
thorough knowledge of the technical and economic factors of 
production which combine to determine expenses and revenue. 



MANAGEMENT OF FORESTS 223 

These factors, each of which will be discussed in turn, may be 
classified as follows: 

1. Location factors 

2. Timber-growing potential of the land 

3. Timber-growing costs 

4. Conversion costs — harvesting, manufacturing, distribution 

5. Market conditions and prices 

Forest products will differ greatly in relative price and profit- 
ableness in the future, as in the past, and market requirements 
and prices will affect profoundly the selection of the forest land, 
the nature of the timber grown, and the conversion processes. 
Even at present, in utilizing the unplanned growing stock of the 
wild forest, managers of forest industries find that one of the most 
important determinants of profitableness is the correct allocation 
of trees and logs to the various end-products, such as lumber, 
plywood, pulpwood and chips, poles, and steam-fuel (see 5/c). 
It will be equally essential, and much more difficult, to appraise 
the relative productive effort which should be assigned to these 
and other timber categories in controlling the growing stock of 
managed forests in the future. 

1. Location of forest land exerts marked and predictable in- 
fluences upon the costs and returns of forest management. The 
natural factors of climate and soil affect the species, quality, and 
magnitude of forest growth; the cost and effectiveness of forest 
protection; and the technology and cost of logging. Proximity to 
water and transportation may affect the site and cost of manu- 
facturing. Distance from markets affects the price of forest prod- 
ucts at the mill. The net effect of these influences, and of pros- 
pective changes in them, on the potential profitability of timber 
growing on a given tract must be estimated. Topics 2, 3, 11, and 
75 provide some general guides to sources of data and methods of 
approach. 

2. The timber-growing potential of a tract of forest land can be 
fully realized only by the application of skillful and imaginative 
management over a long period of time. It is doubtful if any 
actual demonstrations have yet been achieved in the United 
States. It now appears likely that the potential annual growth of 
most American species of commercial importance may be brought 
forward to levels of at least twice the increment predicted by 
existing normal yield tables. In addition to full volume growth, 
potential productivity will include the development of basal area 
and diameter distribution of maximum earning power. Research 



22 4 RESEARCH IN THE ECONOMICS OF FORESTRY 

and practice have not yet contrived to furnish even preliminary 
predictions of these possibilities. Topics 42, 42a, and 42b provide 
some general considerations in the light of such experience as has 
been attained. 

3. Timber-growing costs comprise the two categories (a) capital 
investment in land, growing stock, and improvements, and (b) 
operating expenses for forestation, stand improvement, protection, 
taxes, and administration. These costs will vary with location, 
species, felling age, and intensity of management; they will vary 
also as a result of trends in labor costs and the utilization of 
equipment. American experience with all these elements of cost 
has been so limited that little in the way of methodology can be 
suggested to investigators attempting forecasts of potential costs. 
Moreover, relative efficiency and economy of managerial control 
will be of such importance that estimates of average potential 
costs will be of doubtful significance in affecting investment or 
industrial decisions. The reader is referred to topics 59, 40, 44 , 
and 45. 

4. Conversion costs may be defined as those arising from the 
three processes of harvesting the standing timber, manufacturing 
it, and distributing the final product. These costs differ sharply, 
of course, from one enterprise to another, even apart from man- 
agerial efficiency, as a result of location, tree species, stand struc- 
ture, product, and other factors. Currently, for a specific enterprise, 
they may be estimated in terms of the conventional elements of 
wage costs, materials, depreciation, and overhead. Future costs, 
however, will be influenced profoundly by trends in wages, equip- 
ment, and manufacturing processes which are currently evident, 
as well as by future trends which cannot at present be sur- 
mised. Topics 19,57a, and 5?d, relating to harvesting; 19,57a, 
58, 59, 59a, and 60, manufacturing; and 68, distribution, pre- 
sent some aspects of contemporary practice and economic analysis. 
Significant future knowledge will derive from continued engineer- 
ing research and management experience. 

5. Market conditions and prices will continue to provide abun- 
dant scope for the efforts of the economic analyst and forecaster, 
especially as forest products change in nature and if, as seems 
likely, forest lands are found to have a capacity for production in 
excess of national timber requirements. Here the problem of fore- 
casting rests squarely on economic theory and method, and will 
require continuing study by competent analysts of all industrial, 
academic, and governmental agencies concerned. The subject is 



MANAGEMENT OF FORESTS 225 

of such diversity, difficulty, and complexity that it can only be 
mentioned in this brief review of the general area of costs and 
returns. Topics 64 and 86 should be consulted for more extended 
discussion. 

Data required. Considering the duration and magnitude of the 
forestry effort in America, there have been very few case studies 
designed and carried forward to learn the actual facts of costs and 
returns of timber growing. To be useful, such investigations must 
have continuity and be based on practical circumstances of costs, 
returns, investment, and utilization. Encouraging examples of 
such demonstrations exist at Harvard Forest, Keene Forest of 
Yale University, the Crossett Experimental Forest of the U. S. 
Forest Service, and on a number of industrial properties. On such 
experimental tracts, it will be of increasing advantage, in deriving 
figures of costs and returns, if complete records can be kept 
separately for as many small blocks or compartments as possible, 
each reasonably uniform as to site, composition, and stand struc- 
ture (40). On large tracts or in the sampling of regional con- 
ditions, the interrelationships of site, stocking, tree size, and 
utilization become mutually confusing, and the analyst who wishes 
to draw basic conclusions concerning objectives of stand manage- 
ment must exercise particular care if he is to succeed in defining 
and measuring those variables which are fundamental and 
essential to his investigation. 

42. METHODS OF EVALUATING ALTERNATIVES IN TIMBER OR FORAGE 
MANAGEMENT— -W. E. Bond and Sam Guttenberg 

Purpose. To identify and describe the economic factors deter- 
mining decisions in timber or forest-range management, and to 
determine the methods of weighing these factors to discover the 
maximum -net-return combinations for the individual firm. 

Studies under this head are directed primarily at developing 
principles and procedures. Although it is advantageous as a part 
of the research to test these principles and procedures as they 
apply to specific forest properties, it is not, in general, a function 
of this research to determine optimum combinations for a par- 
ticular business. The function is to develop guides that the forest 
manager may use to work out the best combinations for his 
conditions, as a part of his administrative responsibility. 

Scope and relation to the field. The guides toward which this 
research is directed are guides to the maximization of a firm's 
total net money income per unit of time. The firm in question 



226 RESEARCH IN THE ECONOMICS OF FORESTRY 

may be either a private firm or a public enterprise. If aims other 
than income maximization influence the actions of a firm, sup- 
plements to these guides will be needed. 

It should be emphasized that to take net income per unit of 
time as the measure of success is not to restrict the scope of this 
project to the short run. 

This research considers directly only the growing or making 
available of standing timber and other unprocessed forest prod- 
ucts. However, since the criterion used in evaluating alternative 
forest-management measures is a firm's total income, it is neces- 
sary to take into account the harvesting and processing enter- 
prises where they are a part of the same business. For data on 
these enterprises, the present project draws on its counterpart in 
the harvesting and processing field, topic 57. 

Net income is maximized at the point where small additions of 
any agent of production are just paid for by resulting increases in 
product — that is, where the marginal revenue is equal to the 
marginal cost. The central problem of this research, therefore, is 
to identify, for the several agents of production that are variables 
in any particular instance, the marginal units of these agents, in 
the sense of units that just pay their cost in the form of added 
output. Under the rubric of the margin must be included the 
evaluation of alternative forms of an agent of production as well 
as the evaluation of alternative amounts of a given form of the 
agent. 

In one type of problem, all productive agents, except the en- 
trepreneur, are variable. This is the case where a prospective new 
investor in forest land is evaluating alternative tracts with respect 
to location, size, existing improvements, site, forest type and 
condition, and the like. In this evaluation, his concern is to 
estimate, for each of the more promising tracts, the optimum out- 
lays for further improvements, labor force, equipment, and other 
items if the tract is put under his management, and the probable 
net returns from this set-up, considering the cost of the funds 
needed to purchase the tract and the relative difficulty of exer- 
cising the management function on that particular property. 

The basic problems faced by the new investor are discussed in 
topic 58. Where integration of the forest-management enterprise 
with a harvesting or processing enterprise is in question, the 
considerations discussed in topic 39 come into play. Methodo- 
logically, the problem is related to that in topic 49 on forest 
appraisals, so far as these are directed at the question of how much 
one can afford to pay for a given forest tract. The essential esti- 



MANAGEMENT OF FORESTS 12J 

mates of the costs and returns of timber growing are discussed in 
topic 41 . Other related topics are 2 and 21. 

Beyond the problem of the new investor, in all other problems 
under this project some of the agents of production other than the 
entrepreneur are fixed and thus may be excluded from the evalu- 
ation of alternatives. In typical cases confronting the forest man- 
ager, however, a great many variables still remain. For example, 
wherever basic questions are raised concerning timber-manage- 
ment procedures, the investigation is apt to involve not only 
(a) the comparison of silvicultural systems, but also (b) the 
comparison of tree species, amounts of timber stocking, forest 
composition, and the like, and still further, (c) the comparison of 
alternatives with respect to increasing or decreasing the labor 
force and the investment in land and improvements, for the 
optimum amounts of these agents will depend upon the intensity 
of timber production. Again, the farm woods owner seeking to 
determine his optimum combination (43) must weigh the complex 
of silvicultural alternatives in the light of other uses of the land, 
the equipment and supplies, and the labor of himself, members of 
his family, and hired hands. Thus the problem of finding the 
optimum combination is, at least in theory, one of solving a 
possibly large number of simultaneous equations. 

In practice, however, it is usually preferable to look for the 
optimum combination through a series of successive approxima- 
tions, in which one small facet of the problem is investigated at a 
time while the others are held constant. So viewed, the project of 
evaluating forest-management alternatives is composed of a great 
number of discrete studies of limited scope. 

Within the above conception, then, a second type of problem 
may be recognized, involving primarily the marginal unit of 
land. Examples of questions under this head are whether to alter 
the size of a property through land purchase, sale, or exchange, 
and what acreages to devote to timber growing exclusively as 
against some timber-livestock combination. The latter study is an 
enterprise counterpart of the social problem of land use discussed 
in topic 31. 

A third type of study is concentrated mainly on the marginal 
unit of capital. In the field of timber capital the problem may be, 
for example, the optimum silvicultural system; length of rotation 
or cutting cycle; type, frequency, and severity of thinning; stock- 
ing of timber (42b); or size and quality of trees to grow for har- 
vest (42a). In respect to range capital, study may be directed at 
the most profitable stocking of forage and of animals (42c). In 



228 RESEARCH IN THE ECONOMICS OF FORESTRY 

respect to the capital invested in general forest improvements, the 
optimum layout and type of buildings, fences, or other structures 
may be studied, or the best layout and type of roads or fire lanes. 

Finally, a fourth type of problem involves primarily the mar- 
ginal unit of labor, with its associated capital. Administrative and 
protective labor may be studied to determine the optimum size, 
composition, and distribution of the labor force, permanent and 
temporary. The most profitable degree of protection from fires 
and distribution of fire funds {15b, ijc) are also questions dealing 
mainly with the marginal expenditure of labor and associated 
capital. In respect to the use of labor on cultural operations, 
studies may be made, for example, of the optimum planting 
alternative, type and amount of artificial tree pruning, type and 
amount of timber marking, and extent of girdling or poisoning 
operations. 

Data required. To begin work on the central objective of this 
research — the development of a method for evaluating a class of 
alternatives — no data are required, since the process is purely 
inductive. However, in order to test and adjust the method so 
developed, and also in order to illustrate its use by applying it to 
a specific problem, data of three sorts are needed. 

1. Data on the behavior of trees, stands, or other dependent 
variables in the problem, in response to the various conditions or 
measures being evaluated — that is, data on physical inputs and 
outputs. Examples of this sort of data are information on quality 
of trees and rate of timber growth under alternative densities of 
stand, quality of forage produced under alternatives as to timber 
stocking, and initial and maintenance inputs and equipment- 
operation inputs and outputs for alternative types of road. 

These are silvicultural and engineering data, obtained through 
research in those fields. For present purposes they may be taken 
as given. However, for the economics research that will be based 
upon them, it is important that they be obtained and expressed in 
such a way that economic conclusions may be drawn from them. 
In general, this means that these silvicultural and engineering 
data must be put up in a form that will permit all the pertinent 
margins to be identified. For instance, timber growth as an output 
should be expressed not simply as an aggregate quantity, but in 
terms of tree species, sizes, grades, and other factors that de- 
termine value. Again, physical inputs for road construction and 
maintenance should be determined separately for the various 
classes of labor, equipment, and so on, so that direct and in- 
direct costs may be separated in the economic analysis and so 



MANAGEMENT OF FORESTS 229 

that cost rates appropriate to the place and the time may be 
applied. 

Since much silvicultural and engineering research data 
are gathered primarily for economic analysis of the type en- 
visioned here, it is apparent that the present project stands in an 
important guiding relationship to such research. 

2. Data on cost rates applicable to the physical inputs. For 
some discussion of the cost of land, reference is made to topic 
3 4, of labor, topics 23 and 23a, and of capital, topic 27. Topic 
38 gives some discussion of the "alternative rate of return" or 
"guiding rate of interest" as a measure of the marginal cost of 
capital. 

In some cases, cost data will be expressed per unit of output, 
time, etc., rather than per unit of input. In this connection, 
reference is made to topic 39 and, for a fuller discussion of prin- 
ciples, its opposite number in the harvesting and processing field, 
topic 37a. 

3. Data on rates of return applicable to the physical outputs. 
Relevant consideration of product prices is given in topics 78 
and&5. 

Where forest management is integrated with timber harvesting 
or processing, or in other cases of vertical integration, the relevant 
rates of return are those that are expressed in terms of the output 
of the business as a whole — for example, per thousand feet of 
lumber by grade, where the integrated enterprise is sawmilling. 
To avoid the complexities and other disadvantages of considering 
the whole business in such cases, and at the same time to preserve 
the integrity of the marginal concept, the unit rate of return on 
standing timber may be taken as the unit sales value of the end 
product — lumber in the example — minus the direct costs of log- 
ging and milling the lumber. This measure of value has been called 
"conversion surplus" (Guttenberg and Duerr, cited). 

Where forest management is not integrated with harvesting 
or processing — so that timber, for example, is sold on the stump — 
then the unit value of this timber is its sales price. Because the 
stumpage market is in many cases not so highly sensitive to 
timber quality as is the market for finished products such as 
lumber, the most profitable forest-management alternative for the 
unintegrated enterprise may be quite different from that of the 
integrated enterprise. In the unintegrated enterprise, it may not 
pay to go very far in the direction of quality production. Because 
of these circumstances, integration may often need to be con- 
sidered as one alternative along with alternatives purely within 



230 RESEARCH IN THE ECONOMICS OF FORESTRY 

forest management. This means that conversion surplus based on 
finished products may be an essential type of data in analyzing 
the unintegrated enterprise. 

In some cases, data on rate of return will be expressed per unit 
of input rather than per unit of output. Topic 40, on forest- 
management records, relates to this question, and is pertinent 
also to the problems of cost data. 

Procedure. Because of this project's broad scope and varied 
problems, it will not be possible to do more than generalize in 
respect to procedure. For specific examples of procedure, refer- 
ence is made to topics 42a, 42b, and 42c. The following procedural 
steps will be useful in many of the studies under the project: 

1. Identifying the variables. The purpose of this step is to 
establish clearly at the outset, first, the agents for which margins 
must be determined, and second, the aspects of output that are 
affected by the inputs of these agents. In some cases, if it is 
discovered that there are many variables in the problem selected, 
a wise decision may be to attack the problem piecemeal. 

1. Thinking through a method for determining the marginal 
inputs of the independent variables. 

3. Amending the method to meet the requirements of a practical 
management tool. Amendment may be called for because of errors 
in the original reasoning or because of limitations in data or- 
dinarily available, the need for simplification, etc. It is done in 
connection with testing the method in application to particular 
cases, either actual or hypothetical. The answers given by the 
method in these cases are compared with prevailing practice and 
judgment, in an effort to uncover flaws in the procedure. The 
final result may be two or more versions of a method — one per- 
haps a full or complete version, usable when it is possible and 
appropriate to gather and analyze much basic data in detail; the 
others incorporating various short-cuts, rules of thumb, and the 
like. 

4. Examining the implications of the method and the results of 
the test cases to see if any practical principles of a general sort can 
be identified for the forest area or region where the tests were 
made. For example, does it appear in general that artificial prun- 
ing is profitable only for certain species of trees growing under 
particular circumstances, when carried no higher than a certain 
point on the bole, and when the cost and price prospects are thus 
and so? Although this sort of analysis is in the nature of evaluating 
alternatives — giving answers — rather than propounding methods 
of evaluation — ways of getting answers — it may form an ap- 



MANAGEMENT OF FORESTS 231 

propriate and useful part of the present research by helping the 
forest manager to eliminate unpromising lines of inquiry and to 
concentrate upon questions that are deserving of study on his 
particular property. 

In general, respecting methods of evaluating alternatives in 
forest management, two guiding principles should be noted: 

1. Just as there are margins beyond which it is unprofitable to 
carry the application of labor or capital or any other agent in the 
productive process, so also there is a limit beyond which it is 
unprofitable to carry the application of methods to determine 
these margins. Where the amount of income at stake is small, 
only simple, inexpensive methods for evaluating the alternatives 
are called for. If great differences in income are in question, 
greater outlays for evaluation may be in order. 

2. Any method for economic evaluation of management al- 
ternatives must be thought of and used merely as a guide to 
forest practice and business judgment. No routine procedures 
can provide exact answers to the many and varied problems en- 
countered in growing timber and other forest products. The char- 
acteristics and needs of individual trees and stands are too vari- 
able to be wholly blanketed under a formula. Hence silvicultural 
and engineering judgment must always play a large part in the 
actual choice of alternatives on the ground. 

References. (1) Ashe, W. W.: Adjustment of the volume re- 
moved in selection felling; Jour. Forestry 24, 8, pp. 862-873; 
1926. (2) Duerr, William A., and W. E. Bond: Optimum stocking 
of a selection forest; Jour. Forestry 50, 1, pp. 12-16; 1952. (3) 
Eckbo, Nils B.: Table for determining the financial increment 
percent of trees based on their market values; Forestry Quar. 
5, 1, pp. 37-40; 1907. (4) Guttenberg, Sam, and William A. 
Duerr: A guide to profitable tree utilization; Southern For. Exp. 
Sta., Occasional Paper 114; 18 pp.; New Orleans, 1949. (5) Hei- 
berg, S. O.: Cutting based upon economic increment; Jour. For- 
estry 40, 8, pp. 645-651 ; 1942. (6) Hiley, W. E.: The mean annual 
forest percent; Quar. Jour. Forestry 13, 3, pp. 156-165; 1919. 
(7) Hiley, W. E. : The economics of forestry; xiii, 256 pp.; Oxford, 
1930; especially pp. 131-175. (8) Kirkland, Burt P.: Flexible 
rotation in American forest organization; Jour. Forestry 23, 2, 
pp. 136-147; 1925. (9) Matthews, Donald Maxwell: Manage- 
ment of American forests; xv, 495 pp.; New York, 1935; especially 
pp. 205-376. (10) Thomson, Roy B.: An examination of basic 
principles of comparative forest valuation; Duke Univ. School 
Forestry Bui. 6; 99 pp.; Durham, N. C, 1942. 



232 RESEARCH IN THE ECONOMICS OF FORESTRY 

42a. FINANCIAL MATURITY OF A TREE 

To develop marking guides that may be used as an aid in 
judging which trees in a stand should be harvested in order to 
maximize the net returns from sustained-yield management. 

A basic principle that may be followed in this analysis is that 
a tree, considered by itself, is financially mature when its pros- 
pective rate of increase in conversion surplus — sales value less 
direct costs of bringing the product to the point of sale — during 
the forthcoming cutting cycle falls below the prospective rate of 
return from alternative uses of this capital {42). The develop- 
ment of marking guides on this principle involves: first, the segre- 
gation of trees in general into species and quality classes; second, 
the determination or estimation of how trees of each class de- 
velop in respect to merchantable volume and quality as they 
grow in diameter; third, the assignment of conversion surplus to 
trees of each class and diameter; and fourth, the identification, 
for each class of trees, of that diameter at which financial ma- 
turity occurs, for each of several categories of prospective diam- 
eter growth. The object is to develop a guide that may be ap- 
plied to any tree whose species and quality class, diameter, and 
prospective rate of diameter growth can be recognized in the 
woods. 

In the development of such a marking guide, it will be neces- 
sary to take into account that the basic principle applying to 
the tree considered by itself will not always apply to the tree 
growing in a managed forest. For example, some trees otherwise 
financially mature will in fact not be so, because they can be re- 
leased for greater growth by cutting competing mature trees, or 
because they are needed as seed trees or to maintain stand density. 
And again, some trees otherwise not mature will in fact be mature 
because their increase in conversion surplus is not enough to 
offset their retarding effect upon neighboring trees of higher sur- 
plus. The general economic principle governing some of these 
questions is mentioned in connection with the optimum density 
of growing stock {42b). Economic principles relating to financial 
maturity, as to any timber-management alternative, can be ap- 
plied on the ground only through the medium of silvi cultural and 
engineering judgment. 

42b. OPTIMUM DENSITY OF TIMBER GROWING STOCK 

To determine the most profitable quantity of timber growing 
stock to be carried in a forest under sustained-yield management. 



MANAGEMENT OF FORESTS 123 

The question of optimum stocking is closely interrelated with 
other questions regarding timber stand characteristics, such as 
questions of optimum species and tree-size distributions. As a 
research problem, however, optimum stocking is best studied at 
first in isolation. Under silvi cultural systems where tree size and 
age distributions on small areas vary widely over time, as in 
even-aged systems, optimum stocking may be considered in terms 
of financial maturity of trees {42a). So considered, optimum 
stocking may be defined as that which includes, in trees at or 
below financial maturity, the maximum present worth of con- 
version surpluses of trees at the time of their financial maturity. 
Under silvicultural systems where tree size and age distributions 
on small areas are reasonably constant over time, as in all-aged 
systems, optimum stocking may be defined in the same way, but 
as a simpler, special case: that stocking which includes the maxi- 
mum conversion surplus in trees at or below financial maturity. 
This definition may be stated alternatively in terms of a margin 
for the stand as a whole: optimum stocking is that at which the 
marginal revenue from the timber capital equals its marginal 
cost — i.e., marginal value growth equals the alternative rate of 
return (42). 

In general, the optimum stocking is heavier for firms which 
are motivated by lower rates of interest, or which can obtain 
greater premiums for such extra-quality timber as may be grown 
in denser stands. Again, the optimum stocking is heavier where 
timber growth is faster, other things being equal — as on better 
forest sites. The optimum may be affected by costs that are as- 
sociated with stocking — for instance, property taxes that vary 
with timber stocking. 

42c. OPTIMUM INTENSITY OF GRAZING ON TIMBERLAND— 
Mont H. Saunderson 

Purpose. To determine the number of grazing livestock and 
period of use on timberland that will result in the highest annual 
net return to the entire business, and to qualify such business 
management results in terms of the social aspects of the long-run 
trends in productive capacity of the land. 

Definitions. Enterprise: that part of a business devoted to 
production of a particular product or line of products. 

Supplementary enterprises: those that use some of the same 
elements of production, other than raw materials. 

Scope. The study applies to any land, in private or public 



234 RESEARCH IN THE ECONOMICS OF FORESTRY 

ownership, usable for both forage and commercial timber produc- 
tion, where the question of the most profitable balance between 
timber as the main enterprise and grazing as a supplementary- 
enterprise in dual land use is a point at issue. In this category 
much of the commercial forest land of the United States prob- 
ably can be included. 

Relation to the field. This study is primarily descriptive and 
exploratory, and is of necessity somewhat empirical. Its value 
will be mainly to generate the background concepts and to de- 
velop the methods of analysis for comprehensive studies and 
surveys of the business-economics and resource-policy features of 
the grazing use of definite forest types and conditions for geo- 
graphic regions, subregions, or smaller areas. 

Data required. These are, chiefly, the physical and the financial 
data on the inputs and outputs for the timber production and 
for the grazing, under low, moderate, and heavy intensities of 
grazing, intensity being measured in number of stock and period 
of use. The data are obtained from experimentally controlled 
plots or areas that typify the timberland resource. Each plot is 
of sufficient size to be representative of the forest and range type 
being studied and to permit grazing enough livestock to give a 
sound sample of their responses. For comparable results, the 
timber age and density, the timber site capacity, and the live- 
stock grazing capacity should be the same on each set of plots 
where the different intensities of grazing are tested. Additional 
sets of plots representing other conditions of timber age or density, 
timber site capacity, or livestock grazing capacity may of course 
be installed. The input-output data should be kept for each of 
the two enterprises, so far as the enterprises are separable rather 
than joint in their costs, and for the combination of both enter- 
prises in the business. Also, the study should determine the ex- 
tent to which the two enterprises may be compatible or con- 
flicting in the use of labor and equipment. 

More specifically, on inputs, the study should obtain the labor 
time devoted to each enterprise — and the total labor time if 
some of it be joint — as well as livestock supplemental feed quanti- 
ties, information concerning supplies and equipment, and the 
normal investment values of the livestock and of the timber. The 
output data should include the livestock weights, gains, market 
grades, and prices, and the timber yields, grades, and prices. 

The study should seek also the trend results of the influence of 
the three levels of grazing use upon the forest reproduction, 



MANAGEMENT OF FORESTS 13$ 

grazing forage, soils, hydrology, timber growth, and fire protec- 
tion. The study should, furthermore, attempt to determine, for 
the three levels of grazing, any significant differential between 
long-run and short-time productivity of the grazing enterprise 
itself, aside from the influences upon timber production. 

Method of analysis. The three sets of input-output data should 
first be analyzed in budgetary calculations in terms of the busi- 
ness as a whole — the combined grazing and timber enterprises, 
and others, if any — using the conventional business-accounting 
procedure to determine net entrepreneurial income at current 
cost rates and prices, but excluding interest, either paid or im- 
puted, as a cost. This net-income item should then be analyzed in 
terms of the residual income after an allowance for an interest 
return upon the livestock and upon the timber-stand capital, to 
give the comparison of the management results for the three 
intensities of grazing. Budgets may be drawn up, if needed, for 
various set-ups typical of the area, having different total acreages, 
types of nontimber land, labor supply, etc. 

Next, the input and output data should be manipulated in 
synthesized budgets for analysis and prediction of the net income 
possibilities under different probable cost rates and product prices. 
Similar budgets should be drawn up to analyze the probable 
long-range effects of the grazing and the timber production upon 
the net income. This analysis would still be in the realm of enter- 
prise economics. 

Finally, the social calculations concerning the grazing and tim- 
ber influences should be brought into the analysis, regardless of 
whether the enterprise be private or government. This part of 
the analysis would attempt to show the probable effects of the 
grazing upon farm production and incomes, and as far as possible, 
upon public and private investment, based on the trend informa- 
tion concerning the influence of grazing upon soils and hydrology, 
and of this influence upon floods and flood damage, irrigation 
and urban water supplies, reservoir sedimentation, etc. Into the 
analysis would also come the influence of the grazing upon wild- 
life and recreation and their values, monetary and intangible. 
Some of the research techniques developed in other topics, such 
as topics ij, 14, and 49a, are applicable here. 

43. FARM WOODLAND MANAGEMENT— E. M. Gould, Jr. 

Purpose. To determine the optimum allocation of farm land, 
labor, and capital to the woodland enterprise on a farm or on 



2^6 RESEARCH IN THE ECONOMICS OF FORESTRY 

farms of a certain type as a basis for establishing appropriate ad- 
justments of forest area and practices within the farm business. 

Relation to the field. The best use of a given area of land and 
the most advantageous application of other productive agents to 
it can be determined only within the context of the operating 
unit of which the land is a part. Recognition of this principle is 
essential in dealing with forestry on farms. The several farm en- 
terprises compete with one another in utilizing limited resources; 
important complementary and supplementary relationships also 
exist among these enterprises. For these reasons, individual 
changes in practice can be appraised only by considering their 
effect on the entire farm business. In this project, all the input- 
output or production-function data discovered in the production 
and marketing branches of forestry will be focused on the prob- 
lem of utilizing resources to maximize the returns of an operating 
unit. 

The problem of allocating land and other farm resources be- 
tween forest and nonforest enterprises is of central interest here, 
but such allocations can be evaluated only in terms of the results 
that will be attained when the alternative enterprises are con- 
ducted under specified management practices. Thus, evaluating 
alternative possibilities must be done by comparing combina- 
tions of interdependent changes in resource allocation and man- 
agement practices. 

The assembled analyses will provide information useful to for- 
estry extension workers and farm foresters dealing with land- 
owners. They will also indicate problems needing further research, 
such as forest credit, marketing facilities, and public subsidy or 
control. Still further, they will help reveal the possible contribu- 
tion of farm woodlands to the economy of an area. 

Method of analysis. This project uses budgetary analyses of 
individual farm operating units to compare the possible net re- 
turns from alternative management and land-use programs. Bud- 
get statements present the probable changes in farm income and 
expenses that will result when specified adjustments in the wood- 
land and other farm enterprises have been made. These budget 
statements are simply a summarization of farm receipts, farm ex- 
penses, and the difference between them — net farm income. There 
are two major types of alternatives facing any farm operator. 
Changes can be made in the combination of farm enterprises — 
shifting from dairy to beef, developing brushy pasture into wood- 
land, and the like. Changes may also be made in the practices 



MANAGEMENT OF FORESTS 237 

used in these operations {42, 5?) — using improved seed, changing 
fertilizer practices, introducing new machinery, using more in- 
tensive forms of forestry, using different logging practices, etc. 
Careful budgetary analysis may show the effects of each type of 
change, but this project does not make a point of separating 
these effects. 

In order than an intelligent choice may be made between 
alternative farm plans, considerable attention is also given to 
the requirements, problems, and adjustments of the period dur- 
ing which planned changes are being accomplished. The operator 
may then consider not only the probable returns but also the 
elements of risk, managerial requirements, and his own personal 
and family preferences when deciding which plan best suits his 
circumstances. These latter considerations can be very important 
to the farmer. To insure a realistic analysis, the farmer should 
be included in the planning process as much as possible. He must 
determine which of the many possible alternatives will be worked 
out as practical plans of operation. To have a maximum of use- 
fulness, farm plans must be made with and not for the operator. 

This project will be most useful if it considers possible alterna- 
tives for all the farm enterprises, including forestry. If this is 
impossible, the effects of changed woodland programs can be 
studied in combination with the present organization of the other 
enterprises. In this latter case the plans will consider only those 
nonforest adjustments necessary to integrate the proposed wood- 
land plans into the present organization of the farm. 

The effect of price and cost levels is best eliminated by applying 
long-range cost rates and prices to both the " present" and " pro- 
posed" budgets. The adjustments that will maximize probable 
returns under different cost-rate/price structures may be calcu- 
lated if desired. This may be done by changing the cost-rate/price 
assumptions and observing the effect of this change on the net 
cash returns of various plans. New plans may also be made to 
meet the specific difficulties of these changed relationships. 

In the long run, the number of alternative ways of utilizing 
the physical and human resources of a farm is very large. Over a 
long span of years the fluidity of resources may be great. Within 
the practical future, however, past commitments will severely 
limit choices. For example, on a certain farm, heavy investment 
in cows, equipment, training, and experience may make alterna- 
tives other than dairying undesirable within the foreseeable future. 

In general, the planning of nonforest adjustments is best limited 



238 RESEARCH IN THE ECONOMICS OF FORESTRY 

to those that can reasonably be accomplished within the next 
five or ten years, since changing conditions are likely to make new 
plans necessary with the passage of time. This relatively short 
planning period may not, however, be well suited to the forestry 
analysis. A proposed plan showing the probable returns five years 
hence can include only the short-run effects of any woodland 
program — and these represent only a small part of the benefits or 
detriments of most types of forest management. To indicate the 
full effects of a proposed woodland plan, it is usually necessary to 
present average annual budgets by 5- or 10-year periods until a 
level of production compatible with the suggested practices has 
been attained. This analysis has a distinct advantage in outlining 
the needs that may arise for forest credit, extra labor, marketing 
facilities, and the like. A less detailed plan might skip over the 
years of varying inputs and outputs to show a statement of the 
results that will be attained once full production has been reached. 
Only by projecting the inputs and outputs of different manage- 
ment schemes far enough into the future can the full effects of 
forestry be determined and presented in the budget. 

Considering the state of forestry knowledge, the alternative 
woodland-management programs that should be analyzed are 
probably few in number. Perhaps three levels of intensity will 
be sufficient in most areas: (a) A forestry program that harvests 
stands whenever they will yield usable products. This represents 
a continuation of present practices in many areas, (b) A program 
aimed at harvesting products in such a way as to insure prompt 
and valuable natural reproduction, (c) A program that includes 
not only the insuring of natural reproduction, but also partial 
cuttings to utilize material that would otherwise die and be 
wasted and to improve the growth rate of the better trees. 

Other alternatives that may be adopted alone or in combina- 
tion with the above include mechanizing woods work, changing 
logging practices, planting understocked or open areas, and the 
like. 

The budgetary analyses produced by this project will be di- 
rectly applicable only to the farms for which they were made. 
The plans should, however, highlight the problems that must be 
met by similar operating units and suggest possible adjustments. 
If a careful sample of the given farm type has been chosen, pat- 
terns of adjustment will appear from the several analyses. These 
patterns, together with representative plans for modal farms, will 
be of considerable help to other farmers in making the adjust- 
ments that are suitable for their particular circumstances. 



MANAGEMENT OF FORESTS 239 

Procedure. This project is set up to consider the possible al- 
ternatives not only for the woodland but also for the other farm 
enterprises. The procedure will be discussed in terms of steps, but 
in practice these steps may not be carried out separately or in 
the given order. 

1. Selection of the farm or farms. This presents many prob- 
lems of sampling. The project should be fully collaborative with 
all the interested agencies in the field. These agencies may be of 
considerable assistance in locating study farms. The group might 
include the state extension service, state forestry department, 
county agents, soil conservation districts, farm foresters, and 
the like. 

2. Collection of information about the study farms. Enough data 
on the physical and human resources and the present and past 
operations of the farm must be assembled to define clearly the 
operating unit and construct the " present" budget. The physical 
data will include total farm acreage; area of fields; type, condi- 
tion, and quantity of timber growing stock; soil types; etc. Past 
operations will be recorded to show crop and livestock production; 
practices such as feeding, fertilizing, seeding; use and sale of 
forest products; timber-cutting methods; etc. Information on 
costs, prices, and yields should be detailed enough to make up a 
budget representative of operation during the past few years. 
The forest inventory should be intensive enough to furnish the 
data needed for projecting inputs and outputs under different 
kinds of management. 

3. Preparation of the " present" budget. From the information 
about past years of operation, a budget is made to show the 
present business as it has been carried on in a normal year. 
Temporary variations that might distort the picture are thus 
partially eliminated. To remove the deviations caused by un- 
usual weather, normal yields that are compatible with soil capa- 
bilities and the practices used are applied to the present opera- 
tion. Long-range cost rates and prices are then applied to 
expenditures and sales to eliminate the effects of varying price 
levels. The resulting budget represents the "present" operation 
of the farm. Typical output and input items in the farm budget 
include those listed on the next page. 

4. Determination of alternatives. The analyst and the operator 
will consider what alternatives appear to be most feasible for 
utilizing all the available resources. Rough calculations are made 
to determine the chief problems, requirements, and probable net 
cash returns of each alternative combination. These calculations 



240 RESEARCH IN THE ECONOMICS OF FORESTRY 



eceipts: 


Expenses: 


Milk 


Grain 


Cows 


Hired labor 


Calves 


Seed 


Poultry 


Fertilizer 


Forest products sold 


Cows 


Etc. 


Truck and tractor expenses 




Building upkeep and maintenance 




Equipment upkeep and mainte- 




nance 




Taxes 




Insurance 




Interest on borrowed money 




Etc. 




Total receipts 




Total expenses 




Net farm income 



will serve as a basis for discarding many possibilities and finding 
the programs that appear most promising. 

5. Analysis of remaining alternatives. When a complete bud- 
getary analysis is made of these remaining alternatives, the net 
cash returns and the capital and management requirements can 
be compared, and the operator can determine and choose as his 
"proposed" plan the program that maximizes his returns. 

6. Preparation of farm plan. A complete farm plan will be pre- 
pared in writing and given to the farmer and other appropriate 
persons or agencies. The plan should include maps of fields, soils, 
and forest stands, a written statement of resources, and a descrip- 
tion of the " present" operation. The problems and possibilities 
should be discussed, and the " proposed" plan or plans presented 
along with the budget statements. A discussion of the problems 
and requirements of the transition period should include such 
subjects as credit and financing. 

7. Application of farm plan. To reach a maximum of useful- 
ness, the plan will now be applied by the farmer. A check should 
be made periodically to measure accomplishments. The interested 
and cooperating agencies in the field should keep in touch with 
the operator and furnish whatever technical advice and aid is 
required. 

8. Preparation of summary. A summary of the adjustment 
patterns discovered and a discussion of the important factors to 
be considered in planning should be prepared. These summaries 
together with typical farm plans, may be distributed to exten- 



MANAGEMENT OF FORESTS 2 4 l 

sion workers, farm foresters, and other appropriate persons to 
guide the adjustments of other operating units. 

Data needed. The accuracy of the budget method is limited by 
the validity of the data on which it is based and the care used in 
the analysis. No discussion of the required nonforest data will 
be included here. In general, information required for nonforest 
enterprises corresponds to that needed for the forest enterprise. 
Considerable information of this type is available from publica- 
tions and from unpublished material. 

One of the chief difficulties encountered in woodland budget- 
ing is the lack of useful input-output data, especially for the long 
run. Considerable information is available concerning the short- 
run problems of harvesting forest products, but much more is 
needed to fill the gaps in this knowledge. The greatest deficiency 
is in the prediction of the yields that will result from different 
forest practices. Topics jp, 40, and 41 discuss some of the research 
needed to furnish input-output data. At present the estimates 
must be based on the best available data, and local experience 
must be used to fill in the gaps. The results of such estimates can 
be corrected as new information becomes available. Present work 
can proceed on the assumption that new knowledge will not 
drastically change the goals set by estimation. However, sufficient 
flexibility must be built into the plans not only to allow for the 
day-to-day adjustments necessary to meet fluctuating conditions 
but also to permit incorporating improved data as they become 
available. 

Another type of information that must be obtained is long- 
range cost-rate/price relationships useful for planning purposes. 
Topics jp, 57a, 78, 82, 83, and 86 may be consulted in this con- 
nection. 

References. (1) Black, John D., Marion Clawson, Charles R. 
Sayre, and Walter W. Wilcox: Farm management; xii, 1073 PP-J 
New York, 1947; especially Chs. XXVIII, XXIX. (2) Chandler, 
John M.: The place of woodland in the farm organization in 
Coos County, New Hampshire; N. H. Agr. Exp. Sta. Bui. 337; 
34 pp.; Durham, 1942. (3) Johnson, Hugh A., et al.: Woodland 
opportunities on dairy farms in New York; 35 pp.; Washington, 
1944. (4) Social Science Research Council: Research in farm 
management — scope and method; Social Science Research Coun- 
cil Bui. 13; 6, 322 pp.; New York, 1932; especially project 8 
(5) Wheeler, Richard G.: New England dairy farm management 
as an example of the operating unit approach to farm manage- 
ment analysis; Jour. Farm Economics 32, 2, pp. 201-215; 1950. 



242 RESEARCH IN THE ECONOMICS OF FORESTRY 

FINANCIAL PROBLEMS OF FOREST 
MANAGEMENT 

Under this head are topics dealing with forest insurance and 
forest taxation: economic institutional arrangements that bear 
directly upon forest management, especially in its enterprise as- 
pects. Forest credit, closely allied to these two as a special man- 
agement problem, is discussed in Chapter III in connection with 
capital as an agent of production. 

44. NEEDS AND OPPORTUNITIES FOR FOREST INSURANCE— H. B. Shepard 

Purpose. To determine need on the part of landowners of an 
area for forest insurance in the light of the risks involved, the 
extent to which insurance facilities are currently available, and 
the feasibility of providing such insurance. 

Attention will be confined to forest-fire insurance. Studies of 
insurance against insects, disease, wind, etc. will best be deferred 
until forest-fire insurance has been soundly established. 

Definitions. Insurance is the spreading of hazard over a group 
sufficiently large to invoke the operation of the law of great 
numbers. Forest-fire insurance, as commonly conceived, is the 
extension of fire insurance against property loss to privately owned 
forest properties. 

In insurance language, a risk is an undertaking that may be 
entered into voluntarily or rejected as a matter of judgment. 
Hazards are unavoidable, though subject to modification once 
the risk is accepted. This brings a condition under which insurance 
people commonly refer to the property unit as the risk. 

Relation to the field. In private-capital economies, one of the 
principal functions of insurance is to develop and maintain bear- 
able and competitive hazard-return relationships. It is believed 
that when the benefits of forest insurance are sufficiently realized, 
such insurance will contribute to private-enterprise forestry by 
making prospective investment returns more attractive. It should, 
in other words, aid forestry in its competition for private capital. 

Credit institutions customarily utilize insurance as added se- 
curity for loans. Forest-fire insurance would enhance the credit 
position of forest-property owners. 

Scope. Because forest-fire losses are highly variable, and be- 
cause a successful insurance program requires unlimited opera- 
tion of the law of great numbers, the study should embrace the 
largest possible area, preferably continental United States. 

Since effective forest insurance is practically nonexistent in 



MANAGEMENT OF FORESTS 243 

North America, it is necessary to establish: (a) loss conditions 
under which effective insurance is practicable, (b) the extent to 
which practicable conditions exist, (c) whether this extent com- 
plies with requirements of the law of great numbers, and (d) 
whether demand is sufficient to promise requisite operation of 
the law and to permit avoiding an unduly large proportion of 
hazardous risks among insured owners. 

There is serious question whether further purely technical forest- 
fire-insurance research is advisable unless it has direct associa- 
tion with an organized, sincere, and authoritative program of 
development of insurance practice. Accordingly, surveys of de- 
mand for insurance will be emphasized in this statement. 

Type of information required. Required information falls into 
two groups. 

1. Loss experience. Underwriting can be expected to effect 
departure of the insurer's loss experience from that of the uni- 
verse, but knowledge of universal experience, in appropriate classi- 
fications, is highly desirable. Studies already completed (see refer- 
ences) define the conditions under which forest-fire insurance is 
practicable, make suggestions for hazard classification, and de- 
termine rates of loss for specified areas during specified periods. 
It is doubtful whether more project work of comparable intensity 
will be required other than in the course of actual forest-fire- 
insurance business. Fire-loss analysis covering regions and time 
periods not covered by earlier studies will be helpful, but prob- 
ably will not need to be carried to a high degree of refinement. 
Information for states or forest regions on average acreage burned 
annually in relation to total acreage exposed in each major forest 
type, combined with indications of trends toward local concen- 
trations of fires, should suffice. Previous studies provide a basis 
for converting such statistics to probable-loss statistics in in- 
surance terms. 

2. The greatest need at present is for data on the demand for 
forest-fire insurance. A demand survey should be designed and 
conducted to answer whether an action program embodying actual 
underwriting is feasible. 

If the findings of the survey are positive, the next phase will 
be a study of ways and means of organizing an insurance carrier. 
This phase, translating research into action, will not be covered 
here. Possible alternatives are the established commercial fire- 
insurance companies; a new company organized and operated by 
the forest owners themselves, perhaps on the mutual principle; 



244 RESEARCH IN THE ECONOMICS OF FORESTRY 

government insurance similar to U. S. Government Life Insurance 
or Federal Deposit Insurance Corporation; or some combination 
of these alternatives. 

Collection and compilation of data. Data on forest-fire losses are 
available from state forestry or forest-fire-control organizations, 
the U. S. Forest Service, and various forest-fire-protection asso- 
ciations. Data on exposed forest acreage, timber types, and quan- 
tities of timber — and thus values — are available in findings of 
the nation-wide Forest Survey. Private sources may be drawn 
upon, in some cases, for refinements not otherwise available. 

Data on the demand for forest insurance can be obtained only 
from the owners of forest properties. However, the mere asking 
whether the respondent would like to buy insurance on his forest 
property would be useless. So, in all probability, would be re- 
quests for information on the terms under which the respondent 
would be a serious prospect unless (a) the questionnaire were very 
carefully and expertly prepared and (b) the questioning were tied 
to some proposal for the offering of insurance. The respondent 
should feel that, at least to some extent, his reply commits him. 
The information should be collected with the avowed purpose of 
determining whether the establishment of an underwriting or- 
ganization is timely, so that if enough positive interest is shown, 
the respondent may expect soon to be given a bona fide oppor- 
tunity to buy forest-fire insurance. The early experience of the 
Federal Crop Insurance Corporation should be explored for en- 
lightening suggestions in regard to such a survey. Probably there 
are other sources of experience. 

In obtaining the demand data, main reliance will probably 
have to be placed upon a mail survey covering a representative 
sample of owners. This should be supplemented, however, by 
personal interviews with a well-stratified subsample of both re- 
spondents and nonrespondents. 

Data should be obtained from at least 1,000 to 1,500 owners, 
well distributed regionally and by property size class. In general, 
the smaller the property size class, the larger the number of re- 
sponses needed, since small owners are much more numerous than 
large owners. 

The questionnaire should include the following points: 

1. Acreage and location of the property and character of the 
timber stand — i.e., species distribution, size classes, and the re- 
spondent's estimate of insurable value. 

2. A classification of insurance coverages. Owners of small 



MANAGEMENT OF FORESTS 245 

and medium -size properties are prospects for full-coverage in- 
surance — insurance against any and all losses. Owners of very 
large and, particularly, widely spread properties are self-insurers 
against small fires, but are usually interested in catastrophe in- 
surance. This pays off only when the insured suffers loss from a 
conflagration or coincidence of fires, and is sold at very low pre- 
mium rates. The questionnaire should include figures opposite 
which the respondent may check whether he would insure him- 
self up to $50,000, or $100,000, or more against loss from one fire 
or the total of his losses during a year. 

3. Statement of an acceptable premium. The respondent should 
be asked what he would be willing to pay as premium — for exam- 
ple, less than 10 cents per $100 per year; 10 to 20 cents per $100 
per year; 20 to 30 cents per $100 per year; etc. 

For clarification to the respondent, it will be well to enclose 
with the questionnaire a sample of the policy form under which 
insurance would be issued. Examples are included in U. S. De- 
partment of Agriculture Technical Bulletins 551 and 651, cited. 

Help can probably be had from numerous organizations and 
associations in the development of mailing lists and distribution 
of questionnaires. The American Forestry Association, American 
Forest Products Industries, National Lumber Manufacturers As- 
sociation and its regional member associations are examples. Ex- 
ploration will disclose other logical cooperators. The mortgagee 
field should be canvassed to some extent. Banks may be reached 
through the American Bankers Association and the various state 
bankers associations. The Farm Credit Administration will doubt- 
less show interest and provide assistance. 

Information should be compiled by forest region, property 
size, forest type, and size of trees. It is important to know not 
only the aggregate value of properties that might be insured and 
the probable premium income, but also whether the responses are 
a representative cross-section of property owners or are biased 
toward the more hazardous risks. Forest type and location are 
the best clues, particularly when integrated with independent 
data on protection and loss experience. 

The fact that an owner might be willing to pay an annual 
premium of even one percent is negative if his property is in a 
locality where fire hazard is high. 

References. (1) Shepard, H. B.: Forest fire insurance in the 
Pacific Coast states; U. S. Dept. Agr. Tech. Bui. 551; 168 pp.; 
Washington, 1937. (2) Shepard, H. B.: Forest fire insurance in 



246 RESEARCH IN THE ECONOMICS OF FORESTRY 

the northeastern states; U. S. Dept. Agr. Tech. Bui. 651; ii, 
46 pp. ; Washington, 1939. (3) Williams, Ellis T. : Forest insurance; 
Northeastern For. Exp. Sta. Paper 26; 85 pp., processed; Upper 
Darby, Pa., 1949. (4) Behre, C. Edward, and S. Blair Hutchison: 
Gaging the timber resource of the United States; U. S. For. Serv- 
ice, Report 1 from "A reappraisal of the forest situation;" ii, 
62 pp., processed; Washington, 1946. (5) Rettie, James C, and 
Frank J. Hallauer: Potential requirements for timber products 
in the United States; U. S. For. Service, Report 2 from "A re- 
appraisal of the forest situation;" ii, 70 pp., processed; Washing- 
ton, 1946. (6) Harper, V. L., and James C. Rettie: The manage- 
ment status of forest lands in the United States; U. S. For. Serv- 
ice, Report 3 from "A reappraisal of the forest situation;" ii, 
29 pp., processed; Washington, 1946. (7) U. S. Dept. Agriculture, 
Forest Service: Forest fire statistics, 1931-34 — 1950; Washing- 
ton, 1935-195 1 (annual). (8) Walters, William: Forest fire in- 
surance in North America with special reference to B. C; British 
Columbia Lumberman 35, 12, pp. 47-48, 108, no, 112, 114, 116; 
1951. 

45. EFFECT OF INCOME AND DEATH TAXATION ON FOREST OWNERSHIP 
AND MANAGEMENT— R. C. Hall 

The purpose of this research is to determine the effect of in- 
come and death taxes on stability and character of forest-land 
ownership and on quality of forest management, to indicate such 
changes in either laws or regulations as might promote sound 
forest conservation and at the same time conform to sound tax 
policy, and to suggest forest-investment policies that afford the 
greatest tax advantages. Federal taxation is of chief concern here 
because the rates are so much higher than those imposed by the 
states. 

The income tax is inherently favorable to forestry because it 
is payable only when income is realized in cash or its equivalent, 
and there is nothing to pay while increment is accumulating for 
future harvest (Fairchild, cited; pp. 405-4 12). The regulations 
governing depletion, while founded on the idea that timber is an 
asset destined for liquidation, are well adapted to forestry opera- 
tions in transition to annual sustained-yield management (Fair- 
child, pp. 406-4 10). 

Current proposals to change income-tax law respecting forestry 
take the form of special favors or subsidies in the interest of 
forest owners. The timber-tax amendments of 1943 (Section H7(k) 



MANAGEMENT OF FORESTS 247 

of the Internal Revenue Code) are in this category. Of a similar 
nature are proposals to allow costs of forest planting and seeding 
and other specified forestry practices — which under present law 
are treated as capital expenditures because sound accounting 
principles require such treatment — to be deducted from gross 
income as current expense. From the standpoint of tax policy all 
such subsidy proposals are questionable, but they are defended 
on the ground that the federal tax laws are full of special-interest 
provisions and that these particular measures would do more good 
than harm. 

Typical studies. 1. Effect on forestry practices, and cost to the 
public in tax reduction, of the first timber-tax amendment to 
the federal code, section H7(k)(i). Under this provision the tax- 
payer may elect to treat as long-term capital gain or loss any 
difference between the depletion value of timber cut during the 
year from property owned more than six months at the begin- 
ning of the year, and the fair market value of that timber also 
at the beginning of the taxable year in which cut. Such election 
creates a hypothetical sale of the standing timber by the taxpayer 
to himself, the sale price being the fair market value of the timber 
on the first day of the taxable year, and the basis for gain or loss 
being the adjusted basis for depletion. The fair market value of 
the timber thus used in determining gain or loss on the timber 
cut during the year becomes the cost of such timber for all pur- 
poses, such as depletion and inventory, in determining net income 
from the sale of the manufactured products of the timber. This 
net income or loss from manufacturing the timber into lumber or 
other products remains taxable as ordinary income. Thus the 
owner-operator of a forest property may take advantage of the 
more favorable rates of taxation on capital gains while converting 
his timber in the usual manner. 

2. Effect on forestry practices, and cost, of the second timber- 
tax amendment, section U7(k)(2). Under this provision a forest 
owner is enabled to take advantage of capital-gain tax rates with 
respect to income derived from disposal of his timber by means of 
a cutting contract under which he retains title to the land and 
control of the method of cutting. In effect, this amendment is 
much like the first, but does not prescribe a specific election by 
the taxpayer, and actual receipts under the cutting contract 
establish the amount of capital gain without a valuation of the 
timber cut. 

3. Probable effect on forestry practices, and cost to public 



248 RESEARCH IN THE ECONOMICS OF FORESTRY 

through tax reduction, of the current proposal to amend the 
federal code to allow the forest owner the option of treating costs 
of planting and seeding as current expenses deductible from gross 
income rather than as capital expenditures recoverable untaxed 
through depletion. 

4. Effect of death taxes on stability of forest ownership and on 
management policies. The statement is frequently made that 
death taxes — usually a combination of the federal estate tax and 
the state inheritance tax — are a great drawback to maintaining 
sustained-yield operations over long periods of time. Most large 
forestry enterprises are in corporate ownership, and it is open to 
question whether changes in stock ownership result in adverse 
change in management of such enterprises. The federal code 
(section 822) provides that payment of estate taxes may be post- 
poned up to ten years on condition that the Commissioner finds 
that otherwise undue hardship would result. 

5. Methods of estate planning designed to mitigate the shock of 
death taxes, and the application of these methods to different 
classes of forest holdings. 

6. The burden of taxation on an investment in deferred-yield 
forestry compared with that on an investment in enterprises 
yielding annual income. 

Methods. The case method is the best approach to studies such 
as Nos. 1, 2, and 4. Cooperation of forest owners is essential. 

Study No. 1 may involve obtaining from forest owner-operators 
in a given territory such facts as whether an election was made 
under section H7(k)(i); if not, the reasons; if so, the net tax 
savings for one or more years; amount of earnings withdrawn or 
paid in dividends for a period before and after the election; and 
the sums spent in those years for forestry activities which would 
not have been spent except for the tax savings. Some judgment 
will have to be exercised by the investigator concerning the real 
effect of tax savings on extent and quality of forestry practices. 
Net tax savings accruing to owners practicing destructive cutting 
is a part of the cost to the public of the provision. A classifica- 
tion of results by individual owners in different income classes 
and by corporate owners will probably be significant. 

Study No. 2 can be conducted along similar lines, bearing in 
mind that no election is involved and ignorance of the provision 
is apparently the only reason for not claiming its benefit. Also, it 
will be of special interest to determine the proportion of owners 
in a given region selling timber under contracts with forestry 



MANAGEMENT OF FORESTS I49 

requirements, who, in absence of this provision, would have sold 
outright in order to profit by the capital-gains tax rates. 

In study No. 4, inquiry may be made whether postponement 
under section 822 of payment of estate taxes was requested, al- 
lowed, or denied; and if changes in management or excessive 
cutting resulted from the necessity for paying such taxes. 

Study No. 3 probably requires a theoretical approach because 
of the difficulty of obtaining objective answers to the question of 
how much more planting and seeding would be done with benefit 
of charging the costs of these operations to current expense. The 
probable cost of direct planting and seeding subsidies may be 
compared with that of indirect tax subsidies at different tax 
rates. The results of studies Nos. 1 and 1 may shed light on the 
probable effects of the proposed option. 

Estate planning is a subject which is adequately covered in 
recent tax literature. 

Study No. 5 concerns the application of established principles 
to different classes of forest holdings, and is necessarily theoretical 
in character. 

The approach to study No. 6 again is theoretical. Since the 
problem concerns a deferred-yield enterprise involving develop- 
ment of second growth, plantations, or both, the assumed condi- 
tions must include an owner with sufficient income from sources 
outside the forestry investment to provide for his current living 
expenses, and one whose objective is to build up an estate with 
minimum impairment through taxation. All forms of taxation 
should be considered, and some of the formulas for computing 
tax burden given in Part 3 of Fairchild may prove useful. For 
owners in high income brackets, a substantial tax advantage may 
be found in favor of investment in deferred-yield forestry. 

Reference. Fairchild, Fred Rogers, and associates: Forest taxa- 
tion in the United States; U. S. Dept. Agr. Misc. Pub. 218; 681 
pp.; Washington, 1935. 

46. BASES AND PROCEDURES OF FOREST- PROPERTY-TAX ASSESSMENT— 
Paul E. Malone 

Purpose and relation to the field. To develop techniques for 
mass appraisal of forest properties for tax purposes that will 
insure a more equitable apportionment of the tax load between 
the various forest properties and between forest lands and other 
classes of real property. 

Assessment procedures, particularly for forest — and all rural — 



250 RESEARCH IN THE ECONOMICS OF FORESTRY 

areas, are badly in need of improvement. Too often, preparation 
of the assessment roll has meant nothing more than copying 
entries made in the preceding period, computing valuation at 
flat rates, or sharply increasing or decreasing particular assess- 
ments in order to satisfy the whims of newly elected assessment 
officials. But if the property-tax risks incidental to the practice 
of forestry are to be minimized, the assessment system should be 
based on facts and rules established and announced to the public 
prior to the performance of the assessment process. 

The principles underlying objective assessment procedures have 
attained the highest degree of development in urban areas. Here, 
haphazard assignment of assessable values has been widely re- 
placed by assessments made in accordance with standardized 
procedures. The differences between urban and rural conditions 
are great; yet the principles, and the goal of objectivity, apply in 
the latter as well as the former. To explain the principles involved 
in the assessment of forest and farm lands, the development in 
urban areas needs to be considered in some detail. 

Standardization of the assessment process involves the de- 
velopment of standard units for inventorying real property and 
the establishment of rules for handling cases which vary from the 
standard. When applied specifically to urban residential lots, the 
unit generally used is the front foot. This is defined as a strip of 
land one foot wide located in the middle of the block and ex- 
tending the full depth of the typical lot in the city. If then, in 
City X, residential lots generally are 120 feet deep, the unit on 
which the base value is stated is a strip of land in the middle of 
the block, 120 feet in depth. The rules, set down in the assessment 
manual, come into play when variations occur. If a lot is less 
than 120 feet in depth, clearly its front-foot value, other things 
being equal, is less than that of the standard 120-foot lot. A depth 
table in the manual supplies the answer. Using this source it is 
possible to increase or decrease the basic front-foot values uni- 
formly as lots exceed the standard depth or fall below it. Through 
following the manual rules, all lots with similar variations will 
be insured similarity of treatment. Tables for corner influence and 
side-alley influence, and rules for applying unit values to lots 
of various shapes and sizes are also provided in the manual. 

In the same way that the front foot provides a unit for land 
measurement, the square foot or cubic foot provides a unit for 
structures on the land. The manual, for example, may describe a 
" standard" low-cost frame cottage with no light wiring or fix- 
tures. Should a house of this type be found that fits all the stand- 



MANAGEMENT OF FORESTS 251 

ard characteristics except that it has electric lights, then an addi- 
tion to the base value is made to account for this variation. A 
square foot for one house in this category is equal in value to a 
square foot in any other house so described. 

The burden upon the assessor under a system based on units 
such as described above is to obtain a complete inventory of the 
units in question. Once this listing is completed, the job is largely 
mechanical — that is, the values set for the various units are 
multiplied by the number of units listed in each tax description. 
The number of front feet of land in residential and] commercial 
areas, adjusted for deviations from the standard, is multiplied by 
the base unit values shown on the land-value map; the number of 
square or cubic feet found for a particular structure adjusted for 
deviations from the standard is multiplied by the appropriate 
manual rate; the two products are summed to give the assessable 
value of the property. 

Standardization of assessment procedures has occurred princi- 
pally in urban centers and in some rural areas where lands have 
high unit value. Possibly the reason that similar principles and 
procedures have not been utilized generally in rural areas is that 
low unit-value properties could not bear the costs of preparing 
the procedural rules and the inventory of the property to be 
assessed. However, with the advent of facilities and techniques 
for classifying land and determining forest and other cover condi- 
tions from aerial photographs, some of the major barriers to 
standardized assessment procedures in areas of low unit values 
have been removed. 

A word of warning should be given regarding the appraisal 
techniques used by the forester as a practitioner (fg) and those 
imposed on the assessor because of the large volume of work he 
is called upon to perform. The assessor must handle appraisals 
differently from the appraiser, say, for a bank or insurance com- 
pany, concerned as the latter is with specific valuation cases. The 
task before the assessor involves making a mass appraisal of 
hundreds, even thousands, of properties. Attainment of equity 
necessitates concern for relationships rather than absolutes. The 
best that the assessor can hope for is to fit assessable property 
into categories that will insure roughly that similar properties 
will receive similar treatment. Too, development of the values 
to be placed against each homogeneous grouping of physical 
units is primarily a problem of establishing proper value relation- 
ships rather than strictly current absolute values. 

Because standardized assessment procedure is as yet so little 



252 RESEARCH IN THE ECONOMICS OF FORESTRY 

used for rural property, much research needs to be done to de- 
velop applicable procedures or to adapt urban procedures. In 
general, the problem applies to all rural land, forest as well as 
nonforest, and each class of land has to be considered as a part 
of this general problem. For the research worker in the economics 
of forestry, however, large segments of the general problem may 
be taken to one side for specialized study. For example, there is 
need for developing categories of land and cover that are uni- 
form enough so that physical units within each category may be 
assigned equal monetary values. Examples of both specialized 
and general research will suggest themselves in the following re- 
view of a promising procedure for assessment standardization. 

Procedure. Before discussing the steps involved in assessment 
standardization, a word ought to be said about what amounts to 
laboratory facilities. A near essential for carrying on research in 
this field is an assessment jurisdiction interested in standardiza- 
tion. Generally speaking, in locating a cooperator, it is advisable 
to seek assistance from some state agency charged with property- 
tax supervisory responsibilities. 

1. Inventorying assessable properties. One of the first steps 
toward improved assessment procedures is obtaining an accurate 
inventory of assessable property. No appraisal can be made satis- 
factorily until the assessor knows where the various tax-roll de- 
scriptions are located and that their area plus exempt properties is 
equal to the total land area. Especially important in this connec- 
tion are maps that identify each description as it appears on the 
tax roll and indicate the number of units — acres, square feet, or 
dimensions — of each. Only by checking against an accurate map 
of this character can the assessor be certain that the land inven- 
tory is complete. Markings that will facilitate location of proper- 
ties in the field — such as streams, bodies of water, highways, and 
railroads — should be designated. Ownership data should be re- 
lated to the map. It is preferable, however, not to make owner- 
ship entries directly on the face of the map, since this item of 
information is subject to continual change. A number system 
keying the map to the property record is superior. 

2. Classifying land and assessable cover. For valuation pur- 
poses, there must be established determinable classifications of 
land, improvements, and cover — where cover is subject to sepa- 
rate assessment — which are well correlated with value. 

In classifying land, productive capacity, in each category of 
use, will undoubtedly be one of the principal factors to consider. 



MANAGEMENT OF FORESTS 253 

For example, in Jackson County, Alabama, cotton, in terms of 
bales produced per acre, has been used as a principal index in 
classifying farm lands according to productive potentials. Again, 
in San Diego County, California, citrus lands are rated according 
to an index based on frost conditions, availability of water, and 
fertility of the soil. Undoubtedly in forest areas other considera- 
tions such as site quality, accessibility, erosion, fire frequency 
and severity, and marketability of tree species adaptable to the 
land might be taken into account (see 49c). In areas where the 
forest has capitalizable values in addition to timber — such as 
syrup, gum, and range forage — these values, too, should be con- 
sidered. 

3. Establishing values under standard conditions. Usually the 
top grade of land provides the starting point for establishing a 
scale of values for each of the land categories. Once a base has 
been established, less valuable classes may be related to it in terms 
of percentage. 

The standard unit for bare timberland may be defined, for ex- 
ample, as follows: that the tract does not exceed a given distance 
from an access road of given specification; that the terrain does 
not exceed a certain degree of steepness; that soil qualities have 
not been seriously damaged; and that site in general is in the top 
bracket for the area. For a standard unit in a timbered land 
classification, the definition might state additionally that the 
timber is of certain desired species, sizes, and quality; that the 
size and shape of the tract is conducive to commercial logging; 
and that markets for timber products are readily available. 

To the extent that these factors and others affect values as- 
signed to the standard unit for the class, then the schedules es- 
tablished must be increased or decreased for any units in the class 
that are above or below the standards established for the class. 
The procedure for handling deviations from standard conditions 
needs to be as clearly defined as the basic classification categories 
themselves. 

Review of the classes established and the unit values established 
for each provides a splendid opportunity to use the committee 
device. Such a group should include realtors, foresters, appraisers, 
bankers, and landowners. The basis for their deliberations should 
be current bona fide sales of properties in the various land cate- 
gories. Not only are the judgments of such a group useful in check- 
ing value relationships, but through broad community participa- 
tion the findings are made more generally acceptable. 



254 RESEARCH IN THE ECONOMICS OF FORESTRY 

4. Building the assessment manual. The assessment manual is 
the end product of the classification and unit-valuation work 
performed by the assessor with the advice of his committee. It is 
the book of rules, not arbitrarily established, but built upon facts 
and the studied judgment of experts and advisory groups. By ex- 
plaining how assessable values are determined and stating the 
specific rules used in land and timber appraisal, the manual 
affords protection to the assessor in defense of his action and to the 
taxpayer against arbitrary and unjustifiable handling of his case. 

In order to obtain public support for the assessment system, 
the manual should be made available to civic groups and inter- 
ested persons as well as to assessing officials. For this purpose the 
manual should allot a number of introductory pages sufficient 
to explain in detail the objectives and procedures of the system. 

Following the introductory material a section should be de- 
voted to crop, pasture, forest, and other land-use categories — how 
classified, the unit values applicable to each class, and the ad- 
justments necessary to account for as many of the variations 
from the standard as can be anticipated in advance. Parenthetic- 
ally, it should be pointed out that every set of rules must be modi- 
fied as experience dictates; new ones must be added as the need 
for them is discovered. 

5. Constructing the property-record card. A property-record 
card should be prepared for each parcel of land shown on the 
property-identification map. Space should be provided on this 
card for entering the name of the owner and the acreage and value 
of each class of land and cover. This card, if intended for use by 
the assessor, should provide for a continuous record for as long 
a period as available space will permit. 

6. Appraising individual properties. After the various land and 
cover classifications have been completed, the unit values for the 
various types of property established, and the rules governing 
their application drawn, the job of appraising a particular prop- 
erty approaches a mechanical process. It is necessary only to 
ascertain the number of assessable units in the various manual 
categories and multiply by the appropriate unit value. 

No system of assessment rules will, under all circumstances, 
produce satisfactory results. Following rules, however, places the 
burden of proof on the assessor when departures therefrom occur. 
Too, rules strengthen the hand of the assessor when he follows 
them. 



MANAGEMENT OF FORESTS 255 

SOCIAL ASPECTS OF FOREST MANAGEMENT 

The first four topics in this section are concerned with the 
problem of combining the agents of forest production so as to 
maximize the net real income of society. They necessarily consider 
all forest values, both those that can be capitalized by individual 
firms and those that cannot; or if primary attention is given to 
one forest product, this product is viewed in relation to all the 
others. Thus the theme of the section is multiple-purpose forest 
management. Its context is the planning of forest production, 
as distinguished from related topics in Chapter II (e.g., /j, 14, 
75), where the context is general economic planning. 

It will be noted that the problem of evaluating social alterna- 
tives in forest management shades directly into the problem of 
evaluating alternatives in land use — i.e., in land management — 
discussed in Chapter III. The main distinction, partly arbitrary, 
is that the first sort of problem involves the combination only of 
the agents of forest production, whereas the second sort of prob- 
lem involves the combination of the agents of the land economy 
as a whole, both forest and nonforest. 

The last two topics in the section, dealing with the description 
and appraisal of existing management practices, provide a transi- 
tion to the next section, on forest valuation. 

47. MULTIPLE-PURPOSE FOREST MANAGEMENT— A. Z. Nelson 

Purpose. To estimate the intensity of permanent management 
of forest properties in an area that will provide the combination 
of forest goods and services which yields maximum net returns to 
individuals or society. 

Definitions. Forest properties: any privately or publicly owned 
tracts of land, large or small, bearing primarily tree vegetation. 

Forest goods: all useful objects derived from the forest environ- 
ment including, for example, logs for the mill, wood for fuel, bark 
for extract, greenery for decoration, grass for forage, berries for 
food, game for the hunter, water for irrigation, and minerals for 
mining. 

Services: the useful functions that a forest environment per- 
forms, such as purifying water and regulating its flow, preventing 
snow and land slides, minimizing erosion and siltation, decreasing 
the harmful effects of winds on nearby structures, providing sites 
for cabins and camp grounds, offering a habitat for birds and 
animals, and producing beneficial physiological effects on man. 



256 RESEARCH IN THE ECONOMICS OF FORESTRY 

Maximum net returns: those returns that result when the last 
units of cost expended in producing each forest product and serv- 
ice are just returned by equal additions to total income in the form 
of these products and services. The returns or income may in- 
clude intangibles not subject to the pricing process of the open 
market. By "cost" as used above is meant the aggregate expendi- 
tures of all interested parties, including (a) individuals, who in 
the case of private land have paramount interest, (b) local public 
bodies — town, county, and state — and (c) the nation through 
the federal government. It is understood that returns or costs 
occurring at different points of time must, for purposes of dis- 
tinguishing the maximum net return, be placed on a common time 
basis by use of an appropriate rate of interest. 

Maximizing net returns may require management for a single 
product or service on one part of a property, and management 
for combinations of products or services on other parts of the prop- 
erty. 

Outline of principles. The problem of maximizing returns from 
multiple-purpose forest management has a number of facets: 

A. With respect to private property. 

1. Solely from the private-enterprise viewpoint (expenditures 
by the individual or corporation and returns to the individual 
or corporation), for a given tract of forest land, study should be 
given to expenditures for that combination of products and serv- 
ices that will provide in continuity the greatest income. This 
study may show that only one or two productive elements should 
be financed rather than several. Or it may show that the highest 
net return can be obtained from several, such as timber products, 
grazing, leasing of recreational sites and berrying, where they are 
not incompatible and where suitable areas for each may be de- 
lineated. This approach has been covered more fully in the section 
on Enterprise aspects of forest management. 

2. The analysis of what additional or alternative expenditures 
to those considered in A-i might be made in the further interest 
of society. Such expenditures might take the form, for example, 
of changes in logging so as to minimize runoff and erosion, reserv- 
ing scenic strips and camp sites, maintaining a better habitat 
for game animals, partial cutting or deferment of cutting in the 
interest of watershed protection, exclusion of grazing to promote 
reproduction, or better fire control. Whatever their nature, they 
represent additional or alternative costs which would provide 
additional social benefits — i.e., products and services. They do 



MANAGEMENT OF FORESTS 257 

not increase and may decrease net income to the individual. This 
analysis involves the three considerations listed below. (For the 
closely related thinking in respect to evaluation of public programs 
in general, topic 14 should be consulted.) 

a. Determination of (marginal) cost-benefit relationships for 
aggregate costs and aggregate returns — i.e., costs and returns to 
the owner plus those to society. 

b. Analysis of the extent to which the obtaining of maximum 
net returns to society may adversely affect returns to the owner 
through reduction or deferment of income. 

c. Analysis of distribution of cost over and above what the 
private owner will incur to maximize his own net returns. Assum- 
ing continuing management by the owner and assuming optimum 
returns to society as the objective, how should the following social 
costs be distributed: 

i. Costs to the owner as in 2-b, above. Should these be borne 
by the owner, by society as a whole, by other individuals who 
may be more directly benefited than is society generally — for 
example, reduction in floods to downstream properties — or by a 
combination of the foregoing? 

ii. Costs in addition to 2-c-i that will provide maximum net 
returns to society. Should these be borne by society as a whole or 
by those directly benefited, to the extent they are benefited, and 
the remainder by society? It is assumed here that the owner 
would not bear any part of these costs nor would he normally 
undertake activities represented by such costs, the benefits from 
which did not accrue to him, except under compulsion. 

B. With respect to public property. The same form of analysis 
is indicated as under A, part 1, in this case being concerned with 
the costs and returns to the unit of government administering the 
land. For related discussion, reference is made to topic 28. 

C. With respect to public fiscal policy. Finally, with regard to 
A or B, the analysis should be extended into the realm of public 
fiscal policy in order to answer the question of how much public 
money should be spent on a given tract. The analysis under A or 
B presumably would show how much money would provide maxi- 
mum net returns from a specific property. However, two other 
problems then arise. The first may fall partly into the present 
study, and the second may not, but is mentioned to round out 
the picture: 

1. What of other properties? Would the same money spent 
elsewhere, either for forest management or for other purposes, 



258 RESEARCH IN THE ECONOMICS OF FORESTRY 

provide a greater return? In general, what is the optimum dis- 
tribution of public funds among the alternative properties? 

1. What is the relationship between public expenditures on an 
area and federal, state, and local public income? How do expend- 
itures affect public debt and net balances in public treasuries? 

Multiple-purpose forest management in the broadest sense — 
i.e., involving social as well as private considerations — must con- 
sider margins among alternative lines of effort. These margins are 

(a) between forest enterprises, such as timber, grazing, and water, 

(b) between forest-management projects or areas, and (c) be- 
tween forest-management and nonforestry programs. The prin- 
ciple pervading the evaluation of all these margins is that effort 
shall be put into alternative lines until the last units of effort 
will return the same value of benefits in all lines, and in no case 
less benefit than will repay the effort. The remainder of the present 
discussion will be devoted to the first of the three types of mar- 
gins — i.e., between forest enterprises — and will consider this type 
of margin in the large sense, in which net social returns are to be 
evaluated. 

Evaluating the forest enterprises. Every manager of a forest, 
whether it be public or private, is faced with the problem of de- 
ciding upon the products and services that he will produce and 
the intensity of effort that will go into the production of each 
one. 

In developing his management plan the manager must first 
consider the physical characteristics of his property: its area, 
present resources, site quality, topography, etc. Next, he must 
consider economic characteristics: present value, markets for prod- 
ucts and services, fixed costs such as taxes, fire protection, etc. 
And finally, he must study alternative procedures of management 
so as to develop that combination of products and services which 
will yield maximum net returns. 

With reference to this last step, if the cost of producing each 
product and service were completely independent of the others, 
then the management of the forest for multiple purposes would 
not be a special problem; each use could be put under manage- 
ment separately and carried to its optimum without reference to 
other uses. Each use, however, is closely related to other uses and 
has a strong influence on their cost curves. Thus the doctrine of 
multiple use has great practical significance, and multiple-purpose 
management requires careful study of the relationships among the 
products of the forest. 



MANAGEMENT OF FORESTS 259 

Such relationships fall into three classes. Enterprises are com- 
patible if increased output for one lowers cost for the others, 
conflicting if increased output raises cost, and independent if a 
change in output has no effect upon cost (Duerr, cited, pp. 96 ff.). 
Whether two enterprises are compatible or conflicting may de- 
pend upon the rate of output of each of the products. Since the 
various forest enterprises are more generally compatible at ex- 
tensive levels of production and more generally conflicting at 
intensive levels, the issues of multiple-purpose management are 
more clearly defined and more greatly in need of study under in- 
tensive forestry than under extensive forestry. 

The problem of evaluating intangible costs and benefits is most 
complex (49). How can a value be set on the water-holding capac- 
ity of a forest soil, or on the prevention of erosion by a forest 
stand? One approach to the problem is to examine situations in 
which government, which is essentially the sole bargainer in this 
very limited market, has set a precedent by putting some public 
program into effect {47b). 

For example: In interior Alaska are over 200 million acres of 
forest, woodland, and tundra subject to recurrent and devastat- 
ing fires. The Department of the Interior spends $200,000 to $300,- 
000 a year for fire control. Annual income from timber and graz- 
ing does not exceed $50,000. The difference is presumed to be more 
than offset by the additional values provided — timber for the use 
of settlers, clear spawning-waters for the salmon industry, forage 
for game animals, reduction of the smoke hazard to air naviga- 
tion, etc. Voters, who in the last analysis control the amount of 
public funds going into various enterprises, in effect set values 
on the benefits accruing from these enterprises. The research 
worker's contribution to the problem is to help by means of a 
critical analysis of the precedents already set, and an appraisal 
of the physical and economic results likely to accrue from the 
various lines of action under study. 

References. (1) Crafts, E. C, and R. Bollaert: Some social 
and economic effects of timber utilization and management in 
Modoc County, California; Cal. For. and Range Exp. Sta., 41 
pp., mimeographed; Berkeley, 1942. (2) Duerr, William A.: The 
economic problems of forestry in the Appalachian region; xi, 
317 pp.; Cambridge, Mass., 1949. (3) Frank, Bernard: Some as- 
pects of the evaluation of watershed flood control projects; Jour. 
Land and Public Utility Economics 18, 4, pp. 391-411; 1942. 
(4) Hammar, Conrad H.: Society and conservation; Jour. Farm 



260 RESEARCH IN THE ECONOMICS OF FORESTRY 

Economics 24, 1, pp. 109-123; 1942. (5) Marquis, Ralph W.: 
Dollar signs and social values; Jour. Forestry 49,. 2, pp. 107-108; 
1 95 1. (6) Marquis, Ralph W.: Economics of private forestry; 
viii, 219 pp.; New York and London, 1939. (7) Nelson, Alf Z.: 
Watershed management requires economic studies; Jour. Land 
and Public Utility Economics 18, 1, pp. 90-91; 1942. (8) Nelson, 
Alf Z.: Conservation expenditures on federal lands; Jour. Farm 
Economics 24, 3, pp. 611-620; 1942. (9) Pearson, Gustaf Adolph : 
Multiple use in forestry; Jour. Forestry 42, 4, pp. 243-249; 1944. 
(10) Renne, R. R.: Public and private aspects of forest land use 
planning; Jour. Forestry 45, 4, pp. 237-243; 1947. (11) Roth, 
Arthur H., Jr.: Evaluation of public range watersheds; Western 
Farm Economic Association Proceedings 20; mimeographed; Ber- 
keley, Cal. (?), 1947; pp. 45-50. 

47a. ECONOMICS OF CONFLICTING USE ON A FORESTED WATERSHED 

To determine where forest uses for purposes other than water- 
shed protection impair water yields, flood control, or erosion con- 
trol; to evaluate the costs and benefits resulting from such uses 
and from their exclusion, in terms of income, employment, and 
other appropriate economic criteria; and to estimate what levels 
of conflicting use are economically justifiable in accordance with 
these criteria. 

This study concentrates upon that part of topic ^7 which is 
concerned with the adverse effects, if any, of timber, forage, wild- 
life, and recreational output upon the production of watershed 
services in the forest. Within the study area, subareas are de- 
lineated in accordance with the effects of the other forest enter- 
prises upon the watershed enterprise. It is assumed that data are 
available or can be obtained, for each subarea, on the impairment 
of forest-watershed conditions associated with different levels of 
output of the other forest products, singly and in various sig- 
nificant combinations. Not only the direct effects of these other 
lines of production upon the watershed, but also the indirect 
effects, such as those of fire, that may be associated with logging 
or recreational use, are determined. These physical relationships 
are then converted to terms of net benefits from each product 
(49 and its subtopics, 47b). Relative benefits as compared with 
those from any given combination will suffice. The combination 
is then sought for each subarea which will yield the greatest total 
of net benefits. Ordinarily this combination will be one in which 
some watershed impairment has occurred, but only in an amount 
which is clearly overbalanced by other gains. 



MANAGEMENT OF FORESTS 261 

47b. EVALUATION OF RECREATIONAL VERSUS INDUSTRIAL USE OF 
FOREST LAND 

To evaluate the costs and benefits to the local area and to 
society at large which could be derived from exclusive recreational 
use of a tract of forest land, as contrasted with industrial use of 
the same land with recreation essentially eliminated. 

The approach to studies of this type follows the general lines 
laid down in topics 14 and 49b. But here the problems of measuring 
the returns from recreational use may require special attention. 
These problems arise from the fact that recreational services of 
the forest are frequently provided to consumers either free or at a 
charge which has no evident relation to the nature of competitive 
demands for use of the forest land. Under such circumstances, 
there is no direct measure of the net returns to land from recrea- 
tional use. If alternatives are to be compared on the basis of net 
returns to the land, some substitute for market-derived measures 
of returns from recreation must be adopted. 

A number of techniques for estimating recreational values have 
been used by administrators as guides to operating decisions; 
most of these techniques, however, have serious logical drawbacks. 
Some possible approaches to the problem are suggested in con- 
nection with the kindred question of estimating values in forest 
wildlife (49a). 

Another possible approach makes use of the notion that some- 
where there is an existing margin, or point of balance, between 
recreational and timber-producing uses of forest land. At this 
point the value of the land for exclusive recreational use is iden- 
tical with that for timber growing without recreation. In an at- 
tempt to identify this margin, an examination is made of a number 
of tracts which are dedicated to exclusive recreational use but 
which, in the absence of such dedication, would have value for 
timber. The tracts should be competitive with one another, and 
should be chosen so that values other than those from timber or 
recreation — e.g., watershed — are nominal. For each of these tracts 
estimates are made of the average long-run level of recreational 
use — say, in man-days per year (see 94) — and of the value of 
the tract for timber growing (49). Ratios are then calculated for 
each tract, showing the timber-growing value foregone per man- 
day of recreational use. For tracts of high recreational use and 
relatively low timber value, this ratio will obviously be small. 
But those tracts closer to the margin between timber and recrea- 
tion will show larger ratios. For the marginal tract, the ratio of 



262 RESEARCH IN THE ECONOMICS OF FORESTRY 

capital value per unit of recreational use could not be less than 
the largest observed ratio if the tracts observed all fulfilled the 
principle of dedication in accordance with highest-value use. Par- 
allel analysis of tracts dedicated to timber growing but suited to 
recreational use might provide a comparable upper limit to the 
capital value per unit of recreational use for the marginal tract. 

Once this marginal value has been estimated, it may be used to 
estimate the value per unit of recreational service of any tract in 
the study area, provided recreationists distribute themselves 
among the available recreational sites in such a way as to equalize 
the marginal returns to them on each site. In practice, this pro- 
vision means that if Yosemite is too crowded, the recreationist 
prefers to go to a nearby county park instead. 

It should be emphasized that this approach assumes that the 
process of dedication is a rational one — that tracts which have a 
higher value for one use than for another will, in the main, be 
dedicated to the higher-value use. It accepts as valid and makes 
use of the value judgment expressed in dedication. It follows that 
the method is worthless as a guide to recreational value where 
most dedications do not reflect any rational weighing of value 
alternatives. It follows also that, as here described, it is not a 
guide to the soundness of existing dedications, although with 
modifications it could be used to appraise their consistency. But 
to the extent that dedications reflect social preferences for recrea- 
tion over alternative values, the method will indicate a finite 
range within which the value of a man-day of recreational use of 
the forest must lie. 

Application of the method sketched above will involve many 
obvious difficulties. These include problems of how to treat im- 
provements on the land, the selection of tracts which are truly 
competitive with each other, and matters involving changes in 
the margin between timber and recreational use over time. The 
existence of such problems, the unsatisfactory nature of methods 
currently in use for measuring recreational values, and the un- 
tried nature of the approach just suggested, all indicate that here 
is an important and difficult field of research open to investiga- 
tion. 

Once the problem of valuing recreational returns to the forest 
land has been solved, the investigator must examine the question 
of alternative returns to other factors of production in the local 
area, such as the labor force and the existing industrial plants. 
If all these other factors were freely mobile, the returns to such 
factors would not be affected by changes in the product toward 



MANAGEMENT OF FORESTS 263 

which forest management is directed. Under such circumstances, 
evaluation of alternatives could be based on returns to the land 
alone. But where other factors lack mobility, the effect of forest- 
management changes on their earnings must also be determined. 
For example, a shift from timber production to recreation might 
conceivably increase the net returns to the land, but with an ac- 
companying decrease in the returns to established sawmills, or 
to the immobile labor force located in the forest area. Such changes 
in returns would then have to be included along with the change 
in returns to the land in evaluating the net benefits of the two 
forest-management alternatives. If all the factors of production 
were immobile, such comparisons could be made by determining 
the total expenditures in the local area which resulted from 
management of the forest for each of the alternatives. Where, 
as is usually the case, some factors are mobile and others are not, 
the comparison should be made after deducting from total ex- 
penditures those outlays which were paid to the mobile factors. 

47c. ECONOMICS OF FOREST- WILDLIFE MANAGEMENT 

To investigate the relation between the intensity of forest- 
wildlife management and the amount and distribution of wildlife 
income; to use this relationship, in the light of interactions be- 
tween wildlife management and management for other forest 
goods and services, as a guide to optimum wildlife management 
in a multiple-purpose program. 

The first phase of the study consists in determining or estimat- 
ing the wildlife values (49a) generated in response to various in- 
vestments in successive management measures, such as game-law 
enforcement, fire protection, restocking programs, habitat de- 
velopment, and administration of hunts. This determination or 
estimate is made for a particular forest property or group of 
properties, under given conditions or assumptions regarding the 
intensity of management for products other than wildlife. Nor- 
mally, a forest will yield some wildlife without expenditures for 
enforcement, habitat improvement, stocking, etc.; and some wild- 
life species may actually be benefited by such abuses of the 
forest as burning and destructive cutting. 

The second phase of the study consists in evaluating the inter- 
relations between wildlife and the other products, primarily the 
areas where conflict is inevitable. 

The third phase is the judgment of the optimum combination 
after the manner of topic 47. 



264 RESEARCH IN THE ECONOMICS OF FORESTRY 

48. FOREST MANAGEMENT IN AN AREA 

To describe the forest management of an area, to trace past and 
current changes in management practices, and to evaluate the 
net benefit of these changes. 

The most useful description of forest management is one which 
shows directly the effects of management on the forest resource — 
i.e., a description which relates the management to resulting 
changes in forest output. But such effects can often be measured 
only over a considerable period; hence other descriptive tech- 
niques may be needed, based primarily on the kinds of inputs 
which management applies to the property. 

One such alternative is to describe management in terms of the 
kinds and amounts of fire protection, methods of timber cutting, 
cultural work and improvements related to nontimber products, 
or other measures applied to the forest properties (48a). General 
knowledge about the effects of the several kinds of practice on 
local forest conditions is then used to interpret such descriptions 
in terms of forest output. Because of the diversity of practices 
among different forest properties in an area, and in order to 
facilitate the job of estimating the output effects, management 
practices will usually be classified in accordance with level of 
intensity, relation to composition and density of the forest stand, 
effects on residual timber volumes or rate of growth, or other per- 
tinent criteria. Such classifications must ultimately be derived 
from the evaluation concepts which are to be used in the study. 
If they are to correlate with net benefits from the management 
of the forest land, care must be used to prepare a classification 
which can be related to such benefits. 

Once the effects of forest management on resource output have 
been described, along with the past and current changes in man- 
agement, the net benefits of these changes may be evaluated by 
comparing the resulting change in value of output with the change 
in management costs. This implies that given management prac- 
tices may be differently evaluated, in terms of the net benefits 
associated with them, not only where biological conditions of the 
forest are different, but also where ownership characteristics, 
market patterns, levels of demand, or other economic factors vary. 

48a. A CLASSIFICATION OF FOREST-MANAGEMENT PRACTICES— 
V. L Harper 

The purpose of studies under this heading is to classify forest- 
management practices in an area and to trace changes in manage- 



MANAGEMENT OF FORESTS 265 

ment practices, as a basis for evaluating the relation of practices 
to associated factors such as land ownership and product prices, 
and for evaluating the effects of practices on the forest economy. 

Forest management involves handling of the forest in the in- 
terests of timber, range, watershed, and other values. These 
various elements rightly have different weights in different local 
ities. For convenience here, the assumption will be made that 
timber production has proper claim to major emphasis. In such a 
locality, the timber-management job breaks down into (a) cut- 
ting and other silvicultural practices, (b) forest protection, (c) 
sustained yield. None of these three is completely independent 
of the other two, nor are the three equally susceptible to classifi- 
cation on individual properties. 

Cutting practices — the best index. Cutting and other silvicul- 
tural practices are the best single index of timber management; 
moreover, they may readily be rated property by property or, 
for very large holdings, working circle by working circle. Accord- 
ingly, they will be used here as the main case in point, with some 
attention in subsequent paragraphs to protection and to the ques- 
tion of including sustained yield in the study. 

An adequate classification scheme for cutting practices is an 
important first step. It should include only silvicultural, harvest- 
ing, and other criteria that are related to quantity and quality 
production of wood. The classification as such should not include 
factors that tend to evaluate the silvicultural and other cutting 
practices in terms of economic feasibility, profit to the forest 
owner, or the like. The scheme might best start with a top class 
of cutting practice aimed at timber yields consistent with the 
full capacity of the land, and then follow with other practices 
ranked in progressively lower classes. The whole purpose of the 
scheme is to provide a yardstick against which cutting practices 
applied to holdings can be rated with respect to their timber- 
producing qualities. The following scheme is illustrative of the 
number and general character of classes that may be used: 

1. High-order cutting practice. A class of measures charac- 
terized by the silviculturally best methods of cutting that will 
build up and maintain quality and quantity yields consistent 
with the full capacity of the land. This class includes, of course, 
very intensive cultural measures — planting, stand improvement, 
and other silvicultural measures of an investment nature where 
needed to build up forest growing stock. 

2. Good cutting practice. A class characterized by cuttings 



266 RESEARCH IN THE ECONOMICS OF FORESTRY 

made in accordance with good silviculture and that leave the 
land in possession of desirable species for vigorous or high-quality 
growth in the immediate future. It is substantially better than 
fair cutting — the next lower class — and contains some of the 
elements of the high-order class. 

3. Fair cutting practice. A class characterized by simple but 
nevertheless positive measures that will maintain on the land a 
reasonable stock of growing timber in species that are desirable 
commercially. This class approximates what some foresters have 
referred to as minimum cutting-practice guides aimed at keeping 
the land reasonably productive. 

4. Poor cutting practice. A class of cuttings that strip the land 
of all currently merchantable timber and leave it with a limited 
means for natural reproduction of desirable species. It leaves 
scattered unmerchantable timber of low quality on broad areas. 
Such cutting is characterized by forest deterioration and by re- 
generation of short-lived, low- value tree species, brush, and weeds, 
with consequent reduction in both quality and quantity of future 
timber growth. It is a liquidation method of cutting. Given time, 
and fire protection, a new stand usually develops with about 40 
percent stocking of merchantable species; if less than 40 percent, 
it falls in the next lower class. 

5. Destructive cutting practice. A class of cutting that leaves 
the land not only without current timber values, but also without 
means for natural reproduction of species of commercial value. 
It results in forest denudation. 

6. Nonoperating land. A class to permit a rating to be applied 
to properties not being operated for timber production or where 
the cutting has not been recent enough to judge its quality. 

The above outline follows in a general way the cutting-practice 
classification used by the U. S. Forest Service in a national survey 
in 1945 (cited). It should be emphasized that the terms high- 
order, good, etc., refer to the silvicultural quality of the practices 
as determining quantity and quality of timber output, and not 
necessarily to the economic effects of the practices. The classes 
could simply be labeled A, B, C, etc., but it seems preferable not 
to do so. In the actual job of drawing up a working plan for the 
study of cutting practices, the researcher will need to define his 
classes as fully and exactly as possible in terms of specific prac- 
tices. For an example, the 1948 annual report of the Northeastern 
Forest Experiment Station (cited) may be consulted. 

In applying the cutting-practice classification in the field, an 



MANAGEMENT OF FORESTS 267 

ocular size-up of logging areas usually will suffice for the survey 
of current practices. Cutting carried on during the last five years 
probably can be considered current. The rating given to the log- 
ging areas on a small or medium-size property can be considered 
as applicable, with respect to owner policy, to the entire owner- 
ship. If the holding is large, the ratings are better applied to sepa- 
rate natural or economic working circles. 

The investigator will be faced with problems of sampling. Al- 
though the ramifications of sampling are too many and complex 
to cover here in any detail, the following general comments may 
be helpful: Public forests — national forests, other federal, state, 
and local — can probably be covered 100 percent, working circle 
by working circle. The same is true for large private holdings. 
On the other hand, medium-size private properties of, say, from 
500 to 25,000 acres each may be so numerous as to require sam- 
pling. The sampling within this stratum is probably best done on 
an owner basis. Small properties, however, probably should be 
sampled on an area basis. Sample areas for small properties can 
be a few square miles each, randomly located with the aid of 
aerial photographs, or they can be townships or some other such 
units of area. 

Changes in cutting practice over time can be determined by 
future examination of the same properties or they can be studied by 
tracing past changes at the time of the first survey. The former 
method is the simpler, but requires a waiting period. Instead, it 
may be possible to rate cutting practices by past 5-year periods, 
thus providing the basis for comparison of practices in different 
periods. But to do this would require owner records and inter- 
views, which undoubtedly will not prove possible except on a 
limited subsample basis. 

Organized protection — a subject for separate survey. There is 
probably little to be gained by attempting to rate individual 
properties or working circles with respect to protection. To be 
sure, a certain amount of protective value — whether against fire, 
insects, disease, wildlife, domestic animals, or excessive runoff 
and erosion — is inherent in, or may be applied with, the higher 
grades of cutting practice. But to try to draw a line between 
results of silvicultural practices and their resultant or associated 
protective practices would probably not prove worth while. Public 
holdings and some large private properties are of course commonly 
set up with a relatively large measure of fire control that is 
applied by the owner or manager quite separately from his ap- 



268 RESEARCH IN THE ECONOMICS OF FORESTRY 

plication of cutting practices, but even here the protection is not 
likely to be independent of organized protection on a broad area 
basis, 

Therefore, instead of a property-by-property survey of fire or 
other kind of protection that could be readily separated from 
cutting practices, the researcher will probably want to give atten- 
tion to the results of organized protection. It is commonly held 
that forest protection is a job to be applied in an area-wide man- 
ner without regard to intervening property or working-circle lines. 
In fact, most forest land is now under some sort of organized pro- 
tection against fire, and the same is true in a general way with 
respect to insects and disease. The questions for the researcher 
to explore in his selected study area are the extent of the coverage 
and the quality of the protection. Fire control, especially, is 
susceptible to classifications on the basis of quality — in some such 
terms as protected area burned over annually. Sources of data 
are the public and private agencies concerned with forest-protec- 
tion activities. 

Sustained yield — it tends to follow the better cutting practices. 
Sustained yield means management of a forest for continuous 
production with the aim of achieving an approximate balance 
between annual net growth and harvest. The concept may be 
applied in two ways: to individual holdings and to areas regard- 
less of ownership. But since the point of greatest interest in sus- 
tained yield is likely to be in the continuous production, year in 
and year out, of forest products from timber stands tributary 
to a natural economic-social unit, it does not matter greatly 
whether sustained yield is organized by individual holdings or for 
an area as a whole. To be meaningful, however, sustained yield 
must be at a reasonably high level. Mere balance of timber cut 
and drain at some low level is of no virtue. 

The quality of cutting practices followed is a good index to 
sustained yield, and for this reason the researcher may well omit 
the element of sustained yield from his classification and survey. 
In an area made up largely of small holdings, the general applica- 
tion of a good level of cutting practice alone would probably 
suffice to insure an area-wide sustained flow of timber products, 
because local sustained yield tends to work itself out from the 
natural interplay of physical and economic forces. It is, of course, 
possible to rate the larger holdings for sustained yield on their 
own. In some areas this might be important where virgin stands 
are being cut at a more rapid pace than can be sustained and with- 



MANAGEMENT OF FORESTS 269 

out much relation to class of cutting practice used. In most areas, 
though, past studies have shown that for large properties there 
is a fairly close correlation between the upper grades of cutting 
practice and a planned continuous flow of products. 

References. (1) Harper, V. L., and James C. Rettie: The man- 
agement status of forest lands in the United States; U. S. Forest 
Service, Report 3 from "A reappraisal of the forest situation," 
ii, 29 pp., processed; Washington, 1946. (2) Northeastern Forest 
Experiment Station: The annual report of the Northeastern For- 
est Experiment Station 1948; 98 pp., processed; Upper Darby, 
Pa., 1949; especially pp. 7-12. 

FOREST VALUATION 

One of the consequences — and therefore an index — of the kind 
of productive agents and the manner in which they have been 
combined in forest management is the current value of the forest. 
The concept of value as an index may range all the way from an 
estimate of expected returns from liquidation of all marketable 
resources in an area to a capitalization of anticipated net returns 
from all forest products under permanent sustained-yield manage- 
ment. In any case, the value here conceived is a calculated quan- 
tity which may or may not equal the returns actually obtained if 
the property is placed on the market for sale. For a discussion of 
the market value of forests, reference is made to topic J4, placed 
in Chapter III because it concerns the buying and selling of an 
agent of forest production. 

The lead topic concerns the principles of forest valuation in 
general. It is followed by two topics that take up the determina- 
tion of specific nontimber values. Represented here are some of 
the most difficult problems in forest-economics research. These 
same problems appeared in the guise of costs-and-returns studies 
in the setting of the whole forest economy in Chapter II (13-15), 
and in a forest-management setting in the present chapter (4/). 
The final topic in the group concerns geographic aspects of forest 
value. 

49. APPRAISAL OF FORESTS— Kenneth P. Davis 

Purpose. To improve appraisals in forestry. The actual process 
of making an appraisal is not considered here as research. The 
problem of how to make a sound appraisal is the concern of this 
study. 

Relation to the field. Appraisal is the act or process of setting 



270 RESEARCH IN THE ECONOMICS OF FORESTRY 

a value on something, and is an indispensable tool in forestry. 
Values of many kinds exist, and their sound estimation is essen- 
tial in the solution of many problems. Appraisals are made prin- 
cipally : 

1. To determine price in transfers of title, as purchase or sale, 
exchange, or estate settlement. 

2. To determine or describe property pledged as security. 

3. To determine compensation, as for damages, eminent do- 
main, or insurance settlement. 

4. To establish a base for tax purposes (46). 

5. For many managerial purposes, where appraisal often takes 
the form of " comparative valuation' ' of alternatives: to guide 
public programs (14), or determine sound operating methods and 
policies for both public and private owners (42, 57). 

Value basis for appraisals. There are three possible bases for 
setting a value by appraisal: original or replacement cost (39, 
5?a), estimated net present worth of all future incomes expected 
{40, 41, 86), and market value (23, 25,34, 78). Market value pre- 
sumably reflects the net result of buyer and seller interaction, 
and all values germane — past, present, or future. Where they 
exist, market values for comparable properties or products are 
usually the best guide to value. In many cases, however, as is 
often the situation in immature timber stands, market values 
either do not exist or if extant are not applicable. In such in- 
stances, appraisals must rest on estimation of original or replace- 
ment cost, or of future incomes. It must constantly be borne in 
mind that such appraisals merely give a guide to market value; 
they do not determine it. 

Basic problems. There are three underlying and closely related 
problems common to most appraisals. These are identification of 
values, determination of methodology, and measurement of 
values. 

1. Problems of value identification. Value is a word of many 
meanings, for there are many kinds of value. At one extreme are 
very intangible aesthetic or sentimental values, and at the other 
are very tangible values such as the commercial value of standard- 
grade lumber. Value depends on use — that is, a property or good 
is of value to someone only to the extent he has a use for it. 
Identification and definition of the particular value or values that 
are to be appraised is a first and essential problem of appraisal. 

1. Problems of method. Since appraisal is a search for value, 
methods employed must be as broad and flexible as the concept 



MANAGEMENT OF FORESTS 271 

of value, and should utilize the best tools of economic analysis. 
Methodology must be devised to suit the situation and purpose. 
As examples: 

a. Joint costs and returns, common in forestry, present many 
problems of methodology. For instance, protection against fire 
serves many purposes, a fact that often makes it difficult or im- 
possible to determine the cost associated with each purpose. 
Integrated forest industries produce many products, one often 
depending on another, and the cost of each product is difficult to 
evaluate (79). 

b. As forestry tends to be an extremely long-term enterprise, 
it offers special and difficult problems in the evaluation of time 
and risk. To plan for a period spanning several human genera- 
tions is a commonplace, but such periods extend considerably be- 
yond the usual concepts of business investment and involve spe- 
cial problems in methodology. 

3. Problems of value measurement. Although the appraisal 
situation and the methodology may be well understood, successful 
appraisal may not be achieved because of the difficulty of getting 
a meaningful measure of values known to be significant. Obtain- 
ing the necessary data often calls for the utmost resourcefulness 
and skill. Examples are: 

a. Many forest values can only partially, if at all, be measured 
in monetary terms. Yet these values are often of decisive impor- 
tance. How should they be measured? What weights should be 
given to different kinds of values where several are involved? 

b. In any appraisal involving interest, the rate is a controlling 
factor and must be set with much care (2/). Business interest 
rates normally include an allowance for risk, cost of handling 
loans, and entrepreneurial profit in addition to pure interest on 
capital. How should these elements be weighed in determining 
the rate for an appraisal? What distinction should be made be- 
tween short-time enterprises within the purview of normal busi- 
ness experience and long-time undertakings involving deferral of 
income for very long periods? 

c. Determination of fire effect is an important appraisal need 
offering particularly difficult problems of measurement. How can 
the effect of fire be measured, both physically and economically? 

Problems for appraisal research. Many of the topics in this 
book involve the technics of appraisal, and much appraisal re- 
search will be done in connection with their investigation. How- 
ever, most appraisal problems have underlying principles in com- 



2J2 RESEARCH IN THE ECONOMICS OF FORESTRY 

mon, and consequently appraisal research can also be done inde- 
pendently. The examples given here are illustrative of problems 
requiring appraisal research: 

1. Stumpage valuation. Traditionally, stumpage value is based 
on an average mill-run lumber, pulpwood, or other rough-product 
sales value less the cost of production including a reasonable 
allowance for profit and risk. To what appraisal situations is this 
"residual - value" approach suited? Where it is suited, should 
rough-product value necessarily be used as a starting point? Or 
should product value at a higher stage of manufacture sometimes 
be used, as where an industry is dominated by stumpage con- 
sumers turning out high-stage products for sale? In general, what 
improvements might be made in stumpage-appraisal procedure 
in light of changing production methods, utilization practices 
(57c), and wood products? 

Where the residual- value approach is not suited, what are the 
alternatives? In what situations may some cost-of-production 
approach be used? Is this latter approach ever suited to apprais- 
ing mature stumpage {42a) — say, in areas where much timber is 
being grown as a business? Is it suited to appraising merchantable 
but immature stumpage? What is the effect of rotation length 
upon these questions? 

2. Values in recreation and wildlife. These values are known 
to be tremendous, but are difficult to measure in monetary or 
any other specific terms. None the less, approximate evaluations 
can be made and may be very useful in guiding sound decisions 
on land use. 

Many approaches are possible. As an example, it might be sup- 
posed that reservation of a particular forest tract for recreation 
purposes is being considered, and the question arises how much 
the tract is worth for such use. This forest also has substantial 
timber value, which can, in general, be measured in monetary 
terms. If, in the collective judgment of responsible people, the 
tract should be set aside for recreation, it can then be assumed 
that the recreation value of the land is at least as much as the 
timber value.* If it is a borderline decision, the timber value can 
be taken as measuring the monetary value for recreation. Com- 
parative analyses of this nature are often very helpful and are 
frequently the simplest and most significant approach {47b). 

* Group judgments may be misleading if the criteria on which they are based 
are inadequate. Use of the approach here suggested requires careful examination 
of such criteria and caution in interpreting the results of analysis. — Eds. 



MANAGEMENT OF FORESTS 273 

What is the value of a pheasant in the field or a deer in the 
woods? Some say it cannot be measured. Yet land-use decisions 
must constantly be made with wildlife values as a prime con- 
sideration. Some approaches to the question are discussed in 
topic 4ga. 

It is believed that through determined research, difficulties in 
the measurement of many such forest values can be solved to a 
degree that will greatly facilitate sound management decisions. 

3. Fire damage. Fire creates some of the most difficult appraisal 
problems in forestry. It may and often does come at a time when 
timber products should not be cut and are not for sale. It may 
completely upset the forest business, with effects extending far 
beyond the actual area and timber burned. For legal, managerial, 
and public policy purposes, good data on fire damage are con- 
stantly needed (15b). 

49a. VALUES IN FOREST WILDLIFE— John D. Black* 

Purpose. To determine the commercial, economic, and other 
values in the forest wildlife resource on specific areas subjected 
to different kinds and intensities of use. 

Definitions and concepts. The major conceptual problem in this 
project is that of value. In a very broad sense of the term, nearly 
everything has positive or negative economic value. It has a posi- 
tive economic value if it satisfies any want of anybody for any- 
thing, and a negative economic value if it dissatisfies such a want. 
The term in economics for want satisfaction is utility. Theoreti- 
cally one could add together all the positive utilities enjoyed by 
all those who make any kind of use of the wildlife in a forest 
tract, including even the pleasure of watching a chipmunk scurry 
across the road, and subtract all the negative utilities, such as the 
anger of the adjoining farmers over depredations of the wildlife 
in the tract, and' come out with a net sum of utility. But no one 
has yet devised a measure of utility, either positive or negative. 

Highly important in this connection is the circumstance that 
utility has a time dimension. An object may satisfy a want for an 
hour or two only or, like a good piece of furniture, over a whole 
lifetime. It may satisfy for a while and then dissatisfy, in which 
case the positives and negatives must be balanced against each 
other. If, for example, a hunter makes a trip to a hunting area and 

* The author gratefully acknowledges the collaboration of Ralph T. King, 
State University of New York, College of Forestry. 



274 RESEARCH IN THE ECONOMICS OF FORESTRY 

wishes afterward that he had spent his time and money other- 
wise, the net in this case may be disutility. 

A measure of the economic value of wildlife that is accepted by 
some is what people spend upon the use or enjoyment of it. This 
measure, however, fails to take into account the distinction be- 
tween input and output. What people spend, both their money 
and their time, is input. The time input includes time spent in 
consumption and time spent on getting ready to consume, such 
as in travel. The satisfactions obtained are output, and it is the 
output that this project seeks to measure. The ratio of output to 
input may be called efficiency. This efficiency needs to be con- 
sidered in terms of both money input and time input of the person 
being "recreated." If this money and time could be combined in 
dollar units, and net utility could be expressed in dollar units, 
then indeed it would be possible to analyze economic values in 
wildlife. 

It has, however, been said that although the output of a recrea- 
tional activity, such as hunting, cannot be measured, it is reason- 
able to assume that output is in proportion to input — that people 
will not go on spending their time and money on a particular form 
of recreation unless they are getting as satisfactory a return as 
they would get in some other use of their time and money. On 
this basis it would be reasoned that the movies are a number of 
times more productive than the stage, considering either total 
gate receipts or total hours in attendance, or some kind of sum of 
the two. Such reasoning will not be accepted here. 

And if it is decided to measure recreation output on the basis 
of input, does the account include just the money and time spent 
after arrival at the recreation area? Or does it include all the 
time and money spent in getting there, the money spent on 
equipment, and so on? 

At this point, the time dimension enters again and becomes in- 
volved in what is often called social value. In terms of so-called 
social value, few students of the subject are prepared to accept 
the amount of money and time spent upon chewing gum, gambling 
and horse racing, and the movies, as a true measure of value to 
society. The very short-run satisfactions obtained from these 
things do not contribute so much to long-run satisfactions as 
money and time spent upon health, education, and the like. A 
cardinal principle of consumption economics is pertinent here — 
namely, that the more of its current income a people can spend 
upon goods that are durable, the larger the return in satisfactions 



MANAGEMENT OF FORESTS 275 

per unit of input. The satisfactions tend to be larger simply 
because they are repeated over a longer period. The consumer 
values which wildlife is expected to contribute are in large measure 
of the durable sort. They get people into the outdoors, or they 
are like a good picture in an art gallery that people come to see 
over and over again. Wildlife specialists are therefore scarcely 
willing to have the value of wildlife output measured on the same 
basis as movie attendance. 

Although these values just described are commonly called social 
values, they are as truly economic values as any that can be named. 
They are merely measured from the standpoint of society or the 
nation rather than the individual, and the purview is much longer 
in consequence. 

There are, however, other scales of value than economic — 
other bases of value than want satisfaction or utility. First, there 
is that of business or commerce — namely, ability to contribute to 
business income or profits. This will be referred to here as com- 
mercial value. It may give rankings very different from the scale 
of economic value. Other scales of value are the moral or ethical, 
the aesthetic, and the religious. Then there is another category 
of values that may intrude themselves at times and determine 
action — such as love, love of nature, or patriotism or duty to 
one's country. It is true that almost any of the foregoing may at 
times have a money equivalent, in the sense that the persons in- 
volved may find themselves in the position of being willing actu- 
ally to pay a sum of money to achieve ends based on such scales. 
It can even be said that satisfying a love for one's children and 
the like is satisfying a want, and thus creating economic value. 
But this is putting human behavior into a mold that is highly 
unreal. It is more real to say, for example, that when one's coun- 
try goes to war, a whole new set of values — namely, contribution 
to winning the war — takes over and determines national and 
human decisions, than to say that wants have changed. The young 
men who by the millions sacrifice the best years of their lives to 
join the armed services are not economically motivated in any 
real sense of that term. 

It follows from the foregoing that measurements or rankings on 
the different scales cannot be added together any more than pounds 
and yards can be added together. This project will therefore not 
undertake to convert all values to either money or economic units. 
Furthermore, it will seek no measures of any kind unless they 
yield commensurability of a significant type. 



276 RESEARCH IN THE ECONOMICS OF FORESTRY 

The other major decision that needs to be made is what will be 
included as wildlife in this project. Will all forms of plant and 
animal life be included — the trees, the weeds, the insects, the 
worms, and even the microorganisms — or will wildlife be under- 
stood for purposes of this project to include only fish, game, and 
other wild animals? It is true that this animal life is not ecologi- 
cally separable from its forest environment. Still, to include all 
biological forms would in effect make the project equivalent to 
measuring the total value of forests. It seems best, therefore, to 
limit this project to fish, game, and other wild animals. (The 
references at the end of this statement indicate that workers in 
this field are thinking of wildlife in these more limited terms.) 
The undertaking, in essence, is therefore that of measuring the 
values in a forest with wildlife thus defined as against one without 
wildlife. Stated more precisely, what values are added by differing 
amounts of wildlife in a forest? 

Another delimitation of the scope of the project grows out of 
the preceding limitation — namely, that it does not include fish 
and fur farming that is carried on with animals in captivity either 
outside or within forests. This line may be a bit difficult to draw 
in the case of animals that may be reared in captivity and turned 
loose later, or fish planted in some waters. 

The values and their measurement. What are the different 
types of value that arise from wildlife in a forest, and what are 
their possibilities of measurement? Commercial value and eco- 
nomic value will be considered, and something will be said briefly 
about other types of value. 

1. Commercial value, the income derivable from wildlife in a 
forest. This is the most tangible type of value. It falls under four 
heads : 

a. Income from the sale of hunting and fishing privileges. 

b. Income from the sale of privileges to other forest visitors, 
so far as the visitors are attracted by wildlife in the forest. These 
visitors may be interested in camping, hiking, photography, and 
the like, or may have scientific or other interests in wildlife. 

c. Possible income from some commercial sales, by operators of 
forests, of wildlife that lives in the forest; or value of use of such 
wildlife by the operator's family. 

d. Income of business firms and others who provide supplies 
and equipment, and lodging, guide, and other services to those who 
visit the forest, again so far as these visitors are attracted by the 
wildlife in the forest. 



MANAGEMENT OF FORESTS 277 

Arriving at the commercial value of any of these sources of in- 
come is difficult. Gross incomes from all can be recorded, and even 
estimates made for that part of item c that represents family 
consumption. But commercial value is net income, not gross. 
Certain necessary expenses must be deducted in the case of a, b, 
and c. These include expenditures such as upon protecting, con- 
trolling, and trapping wildlife, and upon preventing damage of 
wildlife to crops and structures. Again, certain losses must be de- 
ducted, such as damage to crops on farms, livestock on the range, 
standing timber, buildings, rights of way, dikes, levees, irrigation 
and drainage ditches, and terraces and other structures. 

For b and d, it will be necessary to determine how much of the 
payment for privileges or net income earned arises because of 
the wildlife in the forest as distinguished from other services of 
the forest. 

For d, only the net return of those selling to forest visitors or 
providing them services can be counted as a contribution of the 
forest. The net return in this case should include the earnings of 
workers employed by the firms and return for the use of any 
buildings or other equipment. All are part of the economic life 
supported by the forest. 

The unit of measure in commercial values is of course the dollar. 
The receipts and expenditures of the operators of the forest tracts 
and of the agencies and firms and individuals serving forest visitors 
will all be expressed in dollars: the dollars actually received and 
paid. If wildlife products are involved that are consumed without 
being bought and sold, dollar values can be imputed to them on 
the basis of the prices of the equivalent products in the area, but 
not without serious danger of over- or undervaluation. 

Services of unpaid workers are difficult to convert to dollar 
values. The common procedure of giving them a value equal to 
what would be paid in equivalent hired employment is likely to 
result in too high a value in the case of unpaid family and proprie- 
tor labor, since much of this labor would not be made available 
for this use if it had to be hired at the going rates. 

1. Economic value, or net satisfactions received. As already 
explained, satisfactions may be viewed from the standpoint of the 
particular persons using the forest at the time, or from the stand- 
point of the nation or society in the long run. 

Considering economic value first from the individual and 
shorter-run standpoint, one principal difference between commer- 
cial value and economic value is that on the one hand the earnings 



278 RESEARCH IN THE ECONOMICS OF FORESTRY 

of a business firm or other agency operating a forest tract or other- 
wise serving wildlife users may include some profits or other net 
returns arising from a poor use of the consumer's time and 
money; or on the other hand, the earnings of these firms or agen- 
cies may not reflect the full measure of the consumer's satisfac- 
tions. The latter of these two alternatives is more likely to be the 
case. It is highly probable that people are so accustomed to hav- 
ing the services of forests and parks made available to them at 
public expense that they do not value these services, when de- 
ciding how to spend their time and money, in proportion to the 
satisfactions that the services yield. Another difference between 
commercial and economic value is even more important: a con- 
siderable part of the difference between gross return and net re- 
turn, consisting of expenditures in connection with enjoying wild- 
life, represents satisfactions to the consumer. These satisfactions 
are probably the greatest when most gallons of gasoline are 
being burned on the way, most meals consumed, most equipment 
used, etc. Even so, as explained above, the satisfactions have no 
close relation to the amount of the expenditures. 

The economic values in forest wildlife in the longer run and from 
the point of view of society and the nation — such as health and 
education, and satisfaction of love of nature — are probably even 
less proportional to net earnings and expenditures than those 
arising in the shorter run and from the point of view of the indi- 
vidual. 

Some forms of wildlife have other economic values — in both the 
short and the long run — consisting in their part in control of ro- 
dents and other destructive forms of animal life. 

Since no direct measure of final satisfaction is possible, the 
research worker has to be satisfied with an assortment of separate 
indirect measures, such as number of tourists, campers, and hikers; 
states or cities from which they come; and wildlife populations. 
Data on money spent can properly be obtained, provided it is 
called simply this. 

3. Aesthetic values, moral values, etc. These include values in 
objects and places possessing beauty, affording inspiration and 
opportunities for communion, and contributing to the arts through 
music, poetry, literature, and painting, and to moral uplift. In 
this respect, wild animals in their natural surroundings are not 
different from other objects of beauty or inspiration. Although 
these values are largely intangible and purely personal, they are 
of vital concern to practically everyone spending any time in 



MANAGEMENT OF FORESTS 279 

the out-of-doors, and in addition are the values that induce a 
goodly number to become interested in the other forest resources 
and active in their conservation. 

Any possible measures of the aesthetic and moral values in wild- 
life will have to be psychological, and probably relative to other 
objects or uses of time or money. 

Research procedure. It will be best to start with a single forest 
area and develop and test procedures in this area before extending 
the investigation to others. The first area selected should be one 
for which there are as good records as possible, and abundant 
wildlife. The second area studied should differ from the first in 
respect to one major factor, so as to provide an indication of the 
importance of this factor. Very soon, if not at the outset, this 
factor will need to be the density and type of wildlife. Other im- 
portant factors will be types of population, climate, and location 
with respect to population centers. Only after this case method 
has been applied to anywhere from five to ten wildlife areas in 
one general region will it be worth while to undertake to sample 
the whole region. By this time, the researcher will have dis- 
covered the kinds of records that need to be kept, the other data 
to be obtained, and how to analyze them. One region as a whole 
had better be studied before going too far with the study of other 
regions. 

One of the most difficult types of data to obtain will concern 
the receipts and expenses of private firms and individuals serving 
the public that uses the wildlife area. 

Two kinds of data will be needed from those who use the wild- 
life tracts. First, information will be required on the use made 
of the tract and each person using it — his home, occupation, 
economic status, method of travel, expenses, and so on. Second, 
the researcher will need replies to questions on a schedule drafted 
with the assistance of social psychologists, and designed to deter- 
mine why the person came to this wildlife area; what economic 
(satisfactions versus dissatisfactions), aesthetic, and other values 
he obtained from the area; and how these values rank with those 
of similar character obtained from other uses of his time and 
money. Part of these interviews, especially at the start, had better 
be of the depth type. 

Once usable systems of record-keeping, inventorying, and in- 
terviewing have been developed, it will be feasible to make com- 
parisons over time for wildlife areas of different intensities of 
wildlife management and the like. 



280 RESEARCH IN THE ECONOMICS OF FORESTRY 

References. Of the following references, those dealing with 
methodology are Nos. 10 and n; those most helpful on content 
of available material are Nos. i and 5. (1) Adams, Charles C: 
The economic and social importance of animals in forestry, with 
special reference to wildlife; Roosevelt Wildlife Bui., Vol. 3, No. 
4, pp. 509-676; Syracuse, N. Y., 1926. (2) Bellrose, Frank C, and 
Clair T. Rollins : Wildlife and fishery values of bottomland lakes 
in Illinois; 111. Natural History Survey Biol. Notes 21; 24 pp., 
processed; Urbana, 1949. (3) Dieffenbach, Rudolf : Current proce- 
dure for evaluating fish and wildlife resources and unresolved 
problems attaching thereto; U. S. Fish and Wildlife Service, 8 pp., 
processed; Washington, 1949. (4) Grinnell, Joseph: Wild animal 
life as a product and as a necessity of national forests; Jour. 
Forestry 22, 8, pp. 837-845; 1924. (5) King, Ralph T.: Forest 
zoology and its relation to a wildlife program as applied on the 
Huntington Forest; Roosevelt Wildlife Bui., Vol. 7, No. 4, pp. 
461-505; Syracuse, N. Y., 1941. (6) Leedy, Daniel L., and Charles 
A. Dambach: An evaluation of Ohio's wildlife resources; Ohio 
Dept. Agr., Wildlife Conservation Bui. 5; 16 pp.; Columbus, 
1948. (7) Lewis, Harrison F.: Wildlife values; Trans. 14th North 
American Wildlife Conference, pp. 16-20; Washington, 1949. (8) 
Miller, J. Paul, and Burwell B. Powell: Game and wild-fur pro- 
duction and utilization on agricultural land; U. S. Dept. Agr. 
Cir. 6^6; 58 pp.; Washington, 1942. (9) U. S. Dept. Agriculture, 
Forest Service: A national plan for American forestry; 73rd Cong., 
1st Sess., Senate Doc. 12; 1677 pp., (2 vols.); Washington, 1933; 
especially pp. 489-510. (10) Social Science Research Council: 
Research in social psychology of rural life — scope and method; 
Social Science Research Council Bui. 17; 130 pp.; New York, 
1933. (11) Social Science Research Council: Research in farm 
family living — scope and method; Social Science Research Coun- 
cil Bui. 11; 209 pp.; New York, 1933. 

49b. VALUE OF A WATERSHED FOREST 

To estimate the real income produced from a watershed forest 
and the proportion of this income attributable to the forest's 
protective services; and on this basis to evaluate the forest for 
watershed-protection purposes. 

The problem here is to appraise the private and additional so- 
cial net benefits (14) accruing from the forest in the form of in- 
dustrial, agricultural, and domestic water supplies; power; navi- 
gation; flood control; and soil stabilization. Some of the principles 



MANAGEMENT OF FORESTS 281 

involved in the solution of the problem are these: (a) The point at 
issue is the net marginal contribution of the forest to watershed 
services; this contribution is only one of the many which together 
result in the aggregate total of services; conceptually, it is the 
difference between existing net benefits and those that would 
accrue in the absence of the forest, (b) In general, the practical 
need is not to arrive at a total contribution of extensive blocks of 
forest land, but rather to determine the contribution of various 
smaller acreages that are actually marginal — i.e., that may actu- 
ally be damaged or destroyed, as by fire {15b). (c) Because of the 
ameliorating effects of surrounding forest lands, the marginal 
contribution of a small acreage within a forest block is less per 
acre than that of a larger acreage; hence per-acre contributions 
and values must be determined separately for various total acre- 
ages, (d) Per-acre contributions and values will vary also with 
watershed conditions, and must therefore be determined separately 
for the different homogeneous areas within the forest watershed. 

49c. GEOGRAPHICAL VARIATIONS IN FOREST-LAND VALUE 

To determine the differences in value of forest land over an area 
as related to differences in quantity and quality of timber, site 
quality, quality of the logging chance, tenure, accessibility to 
market, and other independent variables. 

This study may be carried out in accordance with the ap- 
proaches described for delineating forestry areas (/). The inde- 
pendent variables are mapped and then translated as a group into 
terms of value in accordance with appropriate appraisal formulas. 
By this procedure a map of current merchantable timber values 
may be obtained, useful — depending upon the degree of general- 
ization — for planning harvesting operations on individual proper- 
ties or for analyzing the resource (6) or the supply (52) in an area. 
Or the thing mapped may be forest-land value based on timber or 
other potentialities under conservative management, as a basis 
for planning and directing programs of forest management or 
analyzing the long-run supply. Or other aspects of value may simi- 
larly be investigated on a geographic basis. 

SUPPLY OF FOREST PRODUCTS 

The whole of the present chapter, as of the next, concerns the 
supply side of the economic equation. In this section, however, 
the subject of supply is given special, pointed consideration in 



282 RESEARCH IN THE ECONOMICS OF FORESTRY 

terms of the supply function. Thus the section is, in a sense, an 
opposite number to Chapter VII, in which the central subject is 
the demand function. Only the supply of basic forest products is 
considered here; the supply of processed products is taken up in 
Chapter V (e.g., 55). 

As the term is used here, supply means the quantities of a 
product that will be made available in a given period in response 
to various conditions of price or other determinants. As a sched- 
ule, supply has " elasticity" — the relative percentage change in 
quantity associated with a change in, say, price at a point in the 
schedule. Thus supply is a dynamic thing, in strong contradistinc- 
tion to inventory — board feet of standing timber, etc. (e.g., 6) — 
which is a comparatively static concept. Furthermore, the fact 
that supply is not a single quantity but a schedule of quantities 
distinguishes it sharply from production, which, although also a 
dynamic concept, is at most a point on a supply schedule and is 
equally determined by demand (e.g., 8f). 

Although supply is, in its commonest use, an industry or group 
concept, the responses of individual firms lie behind those of the 
group and are the parts which add up to the industry's total 
supply. Consequently the first two topics in this section are de- 
voted to the supply from individual firms — that of standing tim- 
ber in the short run and the long run. The stumpage supply of a 
group of firms is next considered. Finally, attention is turned to 
the supply of nontimber products. 

50. SHORT-RUN STUMPAGE-SUPPLY RESPONSES OF THE FIRM 

To estimate the quantities of stumpage available from indi- 
vidual firms in the short run as related to price and other factors, 
and to explain the relationships. 

The short run is viewed as that period of time within which 
the timber supply is essentially unaffected by timber growth. 
The period may, however, be long enough to encompass more than 
a single market experience or transaction. Chapter VI contains 
some discussion relevant to the supply for a specific market. 

An example of a study under this head concerns short-run sup- 
ply responses, in a given period, of a particular class of stumpage 
sellers such as farm-woodland owners who hold a particular sort 
of timber stand. If attention is to focus purely on supply as a 
function of price, the tracts chosen for case study should be alike 
in ownership and in timber quality, accessibility, and markets; or 
appropriate schemes must be devised for expressing price findings 



MANAGEMENT OF FORESTS 283 

in terms of a standard quality of stumpage and logging chance. 
Similar adjustments must be made for variations within tracts if 
fairly uniform tracts are not selected. On the other hand, if the 
purpose of the study is to determine the effect of time, owner- 
ship, timber stand, etc., upon supply, then tracts will be chosen to 
represent different conditions of these variables. 

The cases should be chosen to represent a wide range of supply 
responses, including some where bids were received but no sales 
made, and others where sales were made in varying amounts and 
at varying prices (78) within a recent period. 

Through interviews with the timber owners, and by such other 
means as can be devised, an attempt is made to discover (a) the 
bids rejected and accepted and the amounts and description of 
stumpage sold, (b) the amounts and description of stumpage that 
would have been sold at alternative prices, and (c) the factors 
that determined the relationship between quantity and price. 
The interview problems — which for (b), above, are particularly 
difficult — are similar to those of topic 37. Among the possible 
determining factors that may be investigated are owner's ap- 
praisal of market prices, current and prospective; the degree of his 
initiative in making sales; his evaluation of alternative products 
(j?c) and forms of product for sale; his bargaining position (//), 
including especially such considerations as his need for cash and 
his credit position; his attitude toward and practices with respect 
to doing his own logging or other woods work; the identity and 
characteristics of potential and actual buyers; the terms of sale, 
particularly those involving returns or costs not contained in the 
sales price; the owner's timber-management policies and practices 
{48a)) the costs of timber growing (39) that he considers per- 
tinent; the values he attaches to non timber products of the forest, 
and his judgment of the effect of timber sales upon these values; 
and his need for and use of timber products at home or on the 
farm. 

51. LONG-RUN STUMPAGE-SUPPLY RESPONSES OF THE FIRM 

To estimate the quantities of stumpage that will be made avail- 
able by individual firms in the long run as related to price and other 
factors, and to explain the relationships. 

The long run is conceived as a period of time sufficient to permit 
supply to be changed through timber growth, as well as through 
cutting, cultural measures, and the like, and also through addi- 
tions to or subtractions from forest-land acreage. Where very 



284 RESEARCH IN THE ECONOMICS OF FORESTRY 

long periods of time are considered, the long-run supply can be 
independent of the current quantity of standing timber, resting 
solely on the productivity of the site in relation to timber-manage- 
ment intensity. 

Long-run stumpage supply of a firm is the amounts of stumpage 
of specified kinds that the firm will grow and protect — and even- 
tually sell or otherwise make available during a specific future 
period — in response to various conditions of current and prospec- 
tive prices and other factors. Thus the long-run supply is essen- 
tially a schedule of management goals or growth goals for the 
future, each goal representing the policy that the firm would 
follow under one particular set of present expectations {41). These 
expectations relate to the whole array of conditions and events, 
extending from the present to the future period in question, and 
judged by the firm to have some bearing on its policies with re- 
spect to that period. The exercise of the long-run supply function 
— the extent to which goals are explicitly set, the extent of future 
time for which goals have been or can be conceived, and so on — 
varies greatly among firms. 

The research problem of defining the long-run supply is a prob- 
lem not of forecasting, but of identifying and describing business 
policy which in turn was based upon forecasting. It is true, of 
course, that the long-run supply may be forecast as a research 
job. Since the trends and current conditions upon which expecta- 
tions are based, and also the firm's interpretation of trends and 
conditions, change over time, the long-run supply schedule for a 
given future period is apt to shift from time to time. Forecasting 
consists of attempting to trace probable shifts in the supply 
schedule. 

Though . long-run and short-run supplies are distinct phenom- 
ena, each has effects on the other. Long-run supply, as an ex- 
pression of the kind of timber stand that a firm proposes to have 
in the future — a sort of master plan — necessarily tends to modify 
any aspects of short-run supply that would affect this future 
stand. For example, a firm may reduce its supply in the short run 
in order to increase it in the long run. On the other hand, where 
the short-run supply is large, resulting depletion of growing stock 
may place physical limitations on the longer-run supply, though 
not on that of the longest run. A price that calls forth large offer- 
ings which lead to a decrease in supply in the short run may be 
followed by a higher price that stimulates more intensive timber- 
growing efforts and may tend to increase supply for the longer run. 
These close interrelationships between long-run and short-run 



MANAGEMENT OF FORESTS 285 

supply arise primarily because of the great length of forest genera- 
tions and the slowness of response of genetic output to price and 
other stimuli. 

Of the various lines of research that may be followed within the 
scope of the firm's long-run stumpage supply, the most essential 
is fundamental research on the conceptual and mensurational 
problems suggested in the foregoing discussion. What are the 
independent variables to which the quantity of stumpage is re- 
lated in long-run supply? Which variable or variables are the best 
to use for purposes of quantitative study of supply in different 
long-run periods — for example, may the very long-run supply be 
approached as a problem in cost-curve construction? What mecha- 
nisms can be devised for expressing the long-run and short-run 
supplies in terms of comparable independent variables so that the 
relationships between them may be studied? 

Inductive studies of long-run supply are closely allied to studies 
of the relation of forest ownership to timber management (j7). 
In fact, the supply studies differ only in that they are concerned 
with a schedule of amounts rather than a single amount of 
stumpage. Policies most closely approaching an actual supply 
schedule will probably be found among the most stable private 
forest owners, such as the corporate firms committed to long-term 
management programs. However, both the other private forests 
and the public holdings should offer rewarding material for re- 
search. 

52. SUPPLY OF STUMPAGE IN AN AREA 

To estimate the quantities of stumpage available from an area 
in the short and long run as related to price and other factors, and 
to explain the relationships. 

The short-run phase of this research is an extension of topic 50, 
in which all properties in an area are sampled and the aggregate 
supply schedule is considered to comprise the total of individual 
offerings. More elaborate analysis is required in order to adjust 
for heterogeneity of ownership, product, market, and forest con- 
ditions. Changes in the supply may be traced by putting the study 
on a continuing basis. 

The long-run phase of the research is an extension of topic 51. 
This line of investigation, too, may be made continuing, so as to 
determine and analyze changes in the long-run supply. The study 
may be oriented to the social point of view, to consider the effects 
of public programs {14, 16) upon supply. 

The studies under this head, together with the analogous studies 



286 RESEARCH IN THE ECONOMICS OF FORESTRY 

of demand (92, 95), are basic to the planning of public programs 
bearing on timber production, and to the establishment of timber- 
production goals (89, 90). 

53. SUPPLY OF NONTIMBER PRODUCTS 

To examine the relationship between the quantities of a forest 
product other than timber made available in an area, and the 
factors determining these quantities. 

For those forest products whose values may be capitalized by 
individual firms — such as forage and in some cases recreational 
services, fish, and game — the type of analysis made in topic 52 
can be followed. For those products whose values are primarily 
social and which do not enter into exchange, the analysis is closely 
akin to general evaluations of private and public forestry pro- 
grams (e.g., ij, 14, 16) and to studies of multiple-purpose forest 
management (4/ and its subtopics). The orientation, however, is 
toward the varying quantities of the nontimber products that 
society can provide for itself in the short and long run with vary- 
ing degrees of effort. Such an appraisal is basic to deciding the 
size and timing of public programs. 



CHAPTER V 

Forest-Product Harvesting and 
Processing 

This chapter treats the manufacturing production of forest 
products. It examines the structure and organization of harvest- 
ing and processing industries and the economics of the individual 
firms or plants participating in the production process. 

The chapter concerns only those forest products which require 
manufacturing by a firm. Further, certain products of the forest 
obtained also, and largely, from nonforest sources are omitted 
from consideration. For example, the utilization of livestock, even 
when forest-grazed, can best be studied from the vantage point 
of the livestock industry, and thus is considered a part of the 
economics of agriculture rather than of the economics of forestry. 

It follows that the concern here is only with the harvesting and 
processing of products from the tree. First come studies which 
describe and explain the harvesting and processing industries and 
the way they operate. The viewpoint is primarily that of the in- 
dustry as a whole. Then comes a series of studies concerned with 
the operation of firms. Problems of combining the agents of pro- 
duction and of the rate of use of existing combinations of these 
agents are considered primarily from the standpoint of the man- 
ager of the firm, faced with the job of making decisions. 

HARVESTING AND PROCESSING INDUSTRIES 

The topics in this section consider groups of firms in an area. 
The research is oriented toward industry, not toward individual 
businesses. 

Many important aspects of such area studies as these are dis- 
cussed in Chapter II, where the concept of industry covers the 
whole range of forest-economic activity, including harvesting and 
processing. Similarly, the discussion of marketing and prices in 
Chapter VI deals specifically and in detail with groups of harvest- 
ing and processing firms viewed from the market place. Accord- 
ingly, much of the material of those chapters is directly relevant 



288 RESEARCH IN THE ECONOMICS OF FORESTRY 

to the studies presented here, if considered from the viewpoint 
of the harvesting and processing industry. 

54. A WOOD-USING INDUSTRY IN AN AREA 

To describe and explain the economic characteristics of a wood- 
using industry in an area as a basis for understanding the de- 
velopment of the industry, its influences on the firms within it, 
its relation to the economy of the area, or the outlook for future 
development. The lumber industry, defined as all the firms en- 
gaged in the manufacture of lumber, will be taken as a case in 
point. The study represents similar research dealing with other 
forest harvesting and processing industries, such as pulp and 
paper manufacturing and the naval stores industry. 

After the area to be included in the study has been determined 
(/), manufacturing will be described in terms of the number and 
sizes of firms, their location, the income and employment which 
they contribute to the area, the volumes and kinds of their output, 
their raw material needs, the productivity of their use of labor 
and capital, the principal markets which they serve, the costs and 
prices which prevail, and similar factors. Next, the economic 
history of the industry may be traced, using the methods of topic 
4 to explain certain features in historical terms. Other features 
may be analyzed and explained in terms of the location (2) or 
ownership of raw material supplies, interactions between the har- 
vesting and processing firms and other economic activity in the 
area (7), marginal productivities of the agents of production {20), 
competition between firms in this area and those in other areas (j), 
transportation conditions (68), and the like. The noted topics 
will suggest appropriate methods. 

The study should be limited to an area within which lumber 
manufacturing is carried on under relatively uniform conditions 
of timber supply, labor, lumber markets, and other strategic 
factors. It may be based largely on secondary sources of data. 

The research will provide essential background necessary to an 
understanding of the problems of individual firms discussed be- 
low. Or it may be used as the basis for analyzing the supply of 
lumber in the area. Such research uses the methods of supply 
analysis which are applied to stumpage in topics 50, 51, and 52. 
The information developed in this study will also be of value in 
general surveys of forest resources (6), and for forecasting 
trends in lumber and timber supplies, in income and employment 
in the area, and in the kind and extent of economic development. 



HARVESTING AND PROCESSING 289 

55. PRODUCTION RESPONSE TO PRICE IN A TIMBER-PRODUCTS INDUSTRY— 
George T. Olson and Henry J. Vaux 

Purpose. To determine the short-run supply responses of tim- 
ber-products producers. The southern pine lumber industry will 
be taken as an example. 

Scope and relation to the field. The lumber industry is widely 
regarded as highly competitive, perhaps because of the large 
number of firms included in it and the relative ease with which 
the numerous small plants can enter into or withdraw from pro- 
duction. The present research may be used to test whether the 
southern pine industry behaves competitively with respect to 
price-production relationships. The results of such a test will be 
helpful as background for research in many of the problems of 
price, production, and marketing which appear elsewhere in this 
book. Moreover, the research will be useful to producers and 
buyers of lumber in establishing production and procurement 
policies, and to public agencies concerned with lumber price and 
production controls in emergencies. It will assist them in es- 
timating, for a given increase or decrease in lumber prices, how 
much the production is likely to increase or decrease within cer- 
tain time limits. 

The present study is concerned with short-term adjustments — 
that is, with adjustments in production which are brought about 
primarily by changes in the rate of output from existing plants. 
These include seasonal changes, cyclical changes of a few years' 
duration, and irregular adjustments. Factors affecting longer-run 
adjustments which involve general expansion or contraction of 
available mill capacity are discussed in topic 58. 

Ideally, the study should develop results applicable to the en- 
tire southern pine industry. But the feasibility of an industry- 
wide approach may be limited by variation in the nature of supply 
responses on the part of different classes of mills. 

For example, where small sawmills are operated as supple- 
mentary enterprises in a farm economy, the marginal cost curve 
of a small portable mill may well be relatively flat for all levels 
of production which do not divert operators from essential farm- 
ing activities. The limit to this flat portion of the curve might 
vary from twenty days to a hundred or more days of mill opera- 
tion per year depending on how the sawmill business fits in with 
the main farm enterprises. If most small mills are operating well 
below this limit, a small increase in price could increase produc- 
tion substantially, whereas when operation of the mills begins to 



290 RESEARCH IN THE ECONOMICS OF FORESTRY 

conflict with the other farm enterprises, marginal costs increase 
sharply and an increase in prices at this stage may cause little in- 
creased production from such mills. On the other hand, the mar- 
ginal cost curve for a large permanent mill designed and set up 
to operate every day may, through most of its range, have a 
more uniform slope than that of the small mills, and the large 
plants may thus respond quite differently to price changes. Also, 
the average slopes of the cost curves of mills of different kinds may 
differ, or the level of the marginal cost curve of the small mill 
may change more than that of the big mill, as the industry passes 
from prosperity to depression or vice versa. 

In other cases, differences in the backlog of stumpage in posses- 
sion of individual operators may be important. To the mill operat- 
ing solely as a timber processor and not as a timber grower, the 
stumpage it owns represents an inventory of raw material very 
much like a large inventory of rough lumber in possession of a 
furniture factory. The individual mill owner's reaction to price 
changes is likely to be affected by the price paid for the stumpage 
and the time it has been carried. In periods of declining prices, 
sawmill operators have been known to put on night shifts in order 
to convert stumpage into lumber more rapidly, thus liquidating 
as much of their stumpage as possible before prices declined still 
further. Hence, both the nature and extent of the supply response 
may be related to the extent of stumpage holdings. 

With such variable conditions of supply response, an industry- 
wide approach might well result in masking some of the important 
relationships of price to production. Hence, even where the ul- 
timate objective is analysis of the whole industry, research may 
have to be pointed at specific segments of it before a satisfactory 
synthesis can be achieved. Small study areas, relatively uniform 
in type of mill, may be selected for intensive analysis. Or a case 
study approach may be taken, following the current response to 
prices of a number of individual mills chosen as representative 
of mill types which are of major importance in the industry. 

Data needed. Complete analysis of production response to price 
will require study both of annual data to establish the relation- 
ship of different levels of price to production, and of quarterly, 
monthly or even weekly data to permit study of the effects of 
price changes of different directions and magnitudes, identifica- 
tion of the timing of responses, and the influence of seasonal and 
other related factors. This dual need should be kept in mind in 
connection with the following discussion of required data: 



HARVESTING AND PROCESSING 291 

I. Price data. It is desirable to obtain a series of southern pine 
lumber prices that covers a period of time sufficiently long to 
establish a trend line. The price series may be monthly average 
prices, quarterly average prices, or yearly average prices, de- 
pending upon the period under study and whether production 
data are available for comparable periods. 

For an industry-wide study, the price used for any given period 
should be the average price received for the total production of 
rough green southern pine lumber at the producer level. Although 
many mills finish and dry much of their product, most of the 
smaller mills responsible for the bulk of southern pine output 
sell their product on a rough green basis. Hence, rough green 
prices constitute the most satisfactory average of industry-wide 
price conditions. However, the price-index figures that are com- 
monly available are based on wholesale prices. A large number of 
the small mills producing only rough green lumber may sell at 
prices which are below the wholesale prices for identical grade 
and finish. The proportion of the total production that moves at 
below-wholesale prices varies according to market conditions. When 
buying is active, many of the small mills attempt to sell in the 
regular wholesale markets at wholesale prices, but when lumber 
is hard to sell, they dispose of their lumber to concentration 
yards and larger mills at less-than-wholesale prices. The spread 
between these mill prices and wholesale prices must normally be 
sufficient to cover the concentration yard's costs of grading, sea- 
soning, and carrying inventory. Moreover, in filling orders calling 
for definite sizes and grades of seasoned lumber, the concentration 
yard may draw on its inventory. Because of this, the wholesale- 
price/mill-price ratio may vary with the status of inventories 
(77). Thus, the wholesale prices received by the concentration 
yards or large sawmills at any given time may not be perfectly 
correlated with the prices being paid to the small producers at the 
same time. 

Furthermore, the lumber-price index figures that are currently 
available are made up of a variety of lumber items, some of 
which are relatively highly refined. To the extent that available 
price indexes are weighted with such refined items, they may not 
correlate accurately with the price received by many primary 
producers. 

If the discrepancies discussed above are not to obscure the 
analysis, available wholesale-price indexes must be used with care. 
The researcher should examine the construction of the indexes 



1$1 RESEARCH IN THE ECONOMICS OF FORESTRY 

in order to determine the relative weights assigned to different 
lumber items. These weights should then be compared with the 
best available estimates of the "mix" of items sold by primary- 
lumber producers. The comparison will suggest the nature and 
extent of bias, if the index is to be treated as a measure of primary 
mill prices. Similarly, it will be highly desirable to determine the 
spread between wholesale prices and prices paid by concentrators 
for mill-run lumber. Case studies of representative small mills 
will provide some basis for correcting bias in the index arising 
from this source. Such information can well be obtained as part 
of the case study work to which reference was made above under 
Scope and relation to the field. 

i. Production data. Southern pine lumber-production statis- 
tics for the period under study should be obtained for the same 
time intervals as are covered by the price data. Census reports 
show annual production by mill-size class and this latter classifi- 
cation will prove helpful in appraising the price index biases dis- 
cussed above. Census data are not reported on a quarterly or 
monthly basis. Hence, for seasonal production information, pri- 
mary reliance may have to be placed on trade association sources 
or primary data collection. Production statistics, too, must be 
carefully examined and evaluated, as they are usually based on 
sample data or on incomplete coverage, and may not accurately 
account for changes in output at the smaller mills. Again, case 
studies will prove helpful in evaluating and interpreting the in- 
formation. 

3. Other data. Information should be obtained on all other 
factors that may have influenced production. For the period 
under study, trade journals should be reviewed for market com- 
ments; weather, labor, and political conditions; legislative 
changes; changes in tax rates, wages, and hours; and the like. 
In addition, certain other factors which may have influenced 
prices should be examined. This may require information on 
lumber inventories at mills and wholesale and retail yards, es- 
timates of the productive capacity of the industry, and data on 
production and price of major competitors, such as Douglas fir 
lumber, and on construction activity and other indexes of lumber 
demand. 

Sources of data. The U. S. Department of Labor collects price 
data from a number of cooperating companies in the southern 
pine industry from which it computes lumber-price index num- 
bers. The Department of Labor will supply information on the 



HARVESTING AND PROCESSING 293 

make-up of its index numbers, for use in modifying or adjusting 
them. The National Archives in Washington, D. C, has a con- 
siderable amount of price data in its files pertaining to prices 
under the OPA, the NRA, and during World War I years. 

The Federal Reserve Bank, the Bureau of the Census, the U. S. 
Department of Commerce, and the U. S. Forest Service have 
information on lumber prices, production, and stocks. 

The U. S. Department of Commerce, the Southern Pine Asso- 
ciation, and the National Retail Lumber Dealers Association 
may be able to supply information on stocks on hand at the mill, 
in wholesale yards, and in retail yards for certain periods of time. 

NRA files, Forest Survey reports and special studies of the 
U. S. Forest Service, and Census reports contain information on 
the backlog of timberland ownership and sawmill capacity. 

Trade journals such as the Southern Lumberman should be re- 
viewed for the period under study in order to determine when 
and how production was affected by various events such as the 
NRA, minimum-wage legislation, changes in tax rates, weather 
conditions, and transportation. 

Methods of analysis. It is generally desirable in working with 
price data to eliminate the effects on lumber prices of movements 
in the general wholesale price level. For example, if lumber prices 
and the general wholesale price level both move upward in the 
same proportion, is the lumber-price increase attributable to an 
increase in demand or is it simply related to the general move- 
ment of all prices? If it is not attributable to an increase in de- 
mand, are the producers aware that the general price level is 
moving upward? Do producers react to this kind of increase in 
price by increasing production? It may be well, therefore, to make 
a comparison of prices and production using both the original 
price data and a deflated price series obtained by dividing the 
lumber-price index by an index of all wholesale prices. 

Both the price and production data may next be plotted over 
time, and trend lines fitted to each series. These trends should 
include both cyclical variations and longer-term secular move- 
ments. Deviations from the trends of the two series should be 
compared to see if there is any basis for establishing a time lag. 
For example, a price increase in June may not be followed by a 
production increase until September. But if data are available 
only on an annual basis, such lags cannot be detected; this empha- 
sizes the need for data which give frequent coverage. Using sea- 
sonal data, indexes of seasonal variation may next be calculated 



294 RESEARCH IN THE ECONOMICS OF FORESTRY 

showing the average value of the variable in question, by months 
or quarters. The seasonal patterns of production and price may- 
then be compared with each other in the light of data on other 
seasonal factors — weather, farm labor requirements, and the like — 
in order to determine whether or not there are stable seasonal 
price-production relationships. 

Next, the analyst may determine the deviations of each price 
and production observation from the "normal" value for that 
date found by combining appropriate trend and seasonal indexes. 
He may then compute the observed deviation as a percentage of 
the normal value. By considering the normal value as ioo percent 
in each instance, it is possible to plot the production deviations 
over the price deviations. For example, it may be determined 
that price on a given date was 90 percent of normal price and 
that production for the corresponding date was no percent of 
normal production. A production deviation of plus 10 percent is 
then plotted against a price deviation of minus 10 percent. By 
plotting the deviations for each period in the series, a number of 
points can be established. The study of time lags should be re- 
peated at this stage, and if lags prove to be essentially " irregular" 
phenomena, the analysis will be more fruitful than the earlier 
one. Again, the deviations from normal can be studied for trend, 
and a line can be drawn which shows the average percentage 
change in production that accompanied a given percentage change 
in prices. Where seasonal data are not available, the analysis 
uses trend values as normals. 

At this point, attention may be directed to some of the sec- 
ondary independent variables in the problem, such as price or 
production of competing materials — e.g., Douglas fir lumber — 
status of inventories, or significant changes in factors affecting 
lumber cost. Where data are adequate, the residuals from the 
price-production regression line just described may be plotted 
against series for each of the secondary variables. If significant 
correlation is observed, this may be taken into account in drawing 
an improved regression between price and production. 

Before significant results are obtained, it is probable that the 
basic analysis just outlined will have to be further refined by 
allowing for additional independent variables. For example, dur- 
ing recent years there is reason to suppose that certain costs have 
become less flexible — e.g., as a result of wages and hours legisla- 
tion — and that declines in the nation's timber inventory have re- 
duced the pressure to maintain production in the face of price 



HARVESTING AND PROCESSING 295 

declines. This suggests the need to subdivide the data into time 
periods during which supply-response conditions were relatively 
uniform. Thus, the preceding analysis may be carried out sepa- 
rately for such periods as the two postwar eras of the early logo's 
and late 1940's — when demand was brisk but labor and equip- 
ment shortages were not acute — for the depression period of the 
1 93o's, and for the war periods when shortages of manpower 
were severe. 

Alternatively, attention may be directed to the influence of 
change in price as distinct from the level of price. A price of $40 per 
thousand may call forth different amounts of production when the 
price has previously been $50 per thousand and when it has pre- 
viously been $30. In studying this phase of the problem, the 
investigator may classify the price changes which took place 
between successive observations according to both the direction 
and magnitude of change, and then look for similarities in pro- 
duction changes accompanying price changes of a given class. 

Similarly, production response may depend on the extent to 
which existing sawmill capacity is being utilized at a given time. 
To test this, estimates of maximum sawmill capacity for various 
periods under study may be used to compute total production as 
a percent of maximum capacity of the lumber industry in the 
study area. The years are grouped by trial and error into two or 
three classes — e.g., all years when industry operated at less than 
30 percent of capacity, all years when industry operated between 
30 and 60 percent of capacity, and all years when industry oper- 
ated above 60 percent of capacity. For each capacity class pro- 
duction deviations are plotted over price deviations as previously 
described. Each class may then show a trend line of different slope 
from that of the other classes. For example, a 10-percent increase 
in price when the industry was operating at less than 30 percent 
of capacity might show a 15-percent or 20-percent increase in 
production, whereas in years when the industry was operating 
at more than 60 percent of capacity a 10-percent increase in price 
might show only a 1- or 3-percent increase in production. 

The theory back of this analysis is that of the marginal cost 
curves of individual producers. What is the general shape of the 
curve for the southern pine industry, for each of the major types 
of producing mills, and under differing general economic condi- 
tions? What is the relative importance of big mills and small 
mills in volume production through the period under study? 
Case studies of representative mills may further support the analy- 



296 RESEARCH IN THE ECONOMICS OF FORESTRY 

sis, which should attempt to trace the differences in the nature 
of supply response, as between large mills and small, good times 
and bad, and expanding and contracting markets. Once such 
differences have been identified, thought may be given to the 
relative weights, in the industry as a whole, of the different types 
of response at different periods of time. 

References. (1) Bean, L. EL: The farmer's response to price; 
Jour. Farm Economics 11, 3, pp. 368-385; 1929. (2) Cassels, J. 
M., and Wilfred Malenbaum: Doubts about statistical supply 
analysis; Jour. Farm Economics 20, 2, pp. 448-461; 1938. (3) 
Johnson, D. Gale: The nature of the supply function for agri- 
cultural products; American Economic Review 40, 4, pp. 539- 

5 6 4;i95°- 

56. ASSOCIATIONS OF TIMBER-PROCESSING FIRMS 

To study the history and functions of a trade association or 
similar combination of firms in order to determine the conditions 
which have led to its development, and to evaluate its influence 
on the operation of the industry and the firms within it. 

Independent business firms have frequently organized into 
groups which work together for limited purposes and are usually 
termed trade associations. Such groups appear throughout the 
forest-industrial order, but are most notable in connection with 
timber harvesting and processing. Because of the limited num- 
ber of associations and wide variety of their objectives, they will 
usually be studied as individual cases. 

The first step is to determine why individual firms first felt 
the need to associate. Was it in response to some industry-wide 
problem, such as the need for product standardization? To an 
apparent opportunity to exert monopoly power over the market? 
To a need for an industry " spokesman" to deal with other or- 
ganized groups such as labor or government? Frequently, the 
answer may be found only after tracing the history of the organiza- 
tion back through a number of antecedents. The study may in- 
volve aspects of marketing (63, 74, 75), interregional competition 
(j), or the like. 

A second step will be to examine the nature and effectiveness 
of the association's activities. What are its objectives? How are 
they determined? Does the association represent an entire indus- 
try, or only certain portions of it? How does it attempt to imple- 
ment its policies? What degree of cooperation does it secure from 
its members? From nonmember firms in the same industry? How 



HARVESTING AND PROCESSING 297 

effective has it been in achieving its objectives? What sorts of 
problem does it undertake to solve? What methods are used in 
solving specific problems? What factors determine the problems 
on which the association will act? The answers to many of these 
questions may be difficult to obtain without the cooperation of 
the association or some of its members. Material published by 
the association and interviews with association members and 
officials are primary sources of information. Data and conclu- 
sions from these sources must be verified by consulting well- 
informed individuals familiar with the association's activities but 
outside its organization, or the records of public investigative 
bodies, when available. General methods applicable to problems 
of program evaluation (/j, 14) may be relevant, if appropriate 
criteria are used. 

MANAGEMENT OF HARVESTING AND PROCESSING 

FIRMS 

The present section considers how managers of harvesting and 
processing firms make the decisions which control the nature and 
operation of these firms and, through them, of the industry. The 
problems involved parallel closely the discussion of enterprise 
aspects of forest management, treated in the preceding chapter. 

First come a group of statements (57 and its subtopics) which 
consider the principles and procedures that should govern the 
choice among alternatives in the management of a harvesting or 
processing business for maximum net returns. The studies point 
to the development of economic guides to managerial decisions. 
They are followed by several studies of how managers make these 
decisions in actual business practice. Four of them (j8, 59, 59a, 66) 
concern problems of investment and thus are related to industry 
studies of long-run supply. They consider what combinations of 
the agents of production or of enterprises are the most profitable. 
The remaining topics concern problems of the kind and volume 
of output from a firm. 

57. GUIDES TO MAXIMIZING NET RETURNS OF A FOREST-PRODUCTS FIRM 

To determine what factors affect choice of alternative manage- 
ment decisions by a harvesting or processing firm, and the methods 
of analyzing them so as to arrive at the most profitable alterna- 
tive. 

This group of studies is concerned with the economic guides 



298 RESEARCH IN THE ECONOMICS OF FORESTRY 

which should govern choice, in order to maximize net returns. 
These guides are based on the principle that net returns will be 
greatest if production is so organized that the returns from the 
marginal unit of production just equal the costs of that unit. 

Rigorous applications of the marginal principle are often too 
slow or cumbersome for the everyday needs of the manager. He 
needs guides which can be applied quickly, be they rules of 
thumb, accounting concepts of unit cost, or similar aids. The re- 
search problem is to identify the principal situations where these 
practical guides are needed and then to develop yardsticks which 
meet both the need for something usable and the need for ac- 
curate decisions. 

The study must first answer the following sorts of questions : 
In the operation of a harvesting or processing firm, what kinds 
of decisions does the manager make which influence net returns? 
What information does he need to have in order to make decisions 
correctly? What methods are now used by managers, both in 
making the decisions and in getting the needed information? 
Where can these methods be improved by developing better 
guides to management? The study then proceeds to the prepara- 
tion of the needed guides by methods illustrated in the next four 
statements. The problem may be approached best through case 
studies of representative firms. 

Comparable problems in the field of timber growing are discussed 
in topic 42. Relevant material on methods of analysis and on 
specific management guides appears in the next four statements 

57a. COSTS OF HARVESTING OR PROCESSING TIMBER— G. R. Gregory 

Purpose. To determine for a firm or group of firms, the costs of 
harvesting or processing forest, products. 

Definition. A cost is any hindrance to production. It thus in- 
cludes not only cash expenditures but also less obvious, though 
important, items such as depreciation. 

Unit costs are the sum of those costs entailed in the production 
of some unit of product or group of products. The product unit 
may be a thousand board feet, a cubic foot, or any other logical 
unit. Unit costs may be stated in monetary or other quantita- 
tive terms such as man-hours, machine-hours, or a combination 
of these. The unit-cost concept is a general one and can be ap- 
plied to any specific process or combination of processes. 

Relation to the field. Under existing business practice in the 



HARVESTING AND PROCESSING 299 

timber industry, cost data provide much of the information upon 
which management bases its decisions. Properly qualified and 
used with full appreciation of their limitations, cost studies be- 
come a valuable aid to the firm. They guide management in 
making intelligent choices between alternative productive proc- 
esses (57), and in determining selling price, scale of plant, opti- 
mum proportional output of combined product manufacture, total 
output, and many similar managerial decisions. The combina- 
tion of materials and services with which a given output can be 
produced at lowest cost is usually considered the goal of efficient 
management, though this goal is often altered by requirements 
for plant flexibility. Comparative cost studies of individual proc- 
esses frequently precede the adoption of innovations. They form 
the basis by which efficiency of crew organization or different 
types of equipment may be judged. Wage rates for piecework 
(2 j a) usually have some cost study — formal or informal — as their 
basis, while cost data nearly always play an important role in 
labor-management discussions. 

Sources of data. Data may be either primary, taken directly 
by the research worker; or secondary, taken from previous stud- 
ies, accounting records, etc. 

Primary data must be taken carefully, particularly if they are 
to serve more than immediate objectives. The usual method of 
collecting primary cost data has been the time study. Such studies 
can yield much valuable information, but the cost of a detailed 
time study is high. 

A second method, alternative to the time study and largely 
untested at present, offers distinct possibilities for obtaining pri- 
mary data in many situations. If previous work has established 
the algebraic form of the relationship between time and pertinent 
independent variables, or if the form of this function can be 
logically derived, aggregative data may yield satisfactory es- 
timates of the constants in the equation through analysis by 
statistical techniques. For example, Hasel (cited), in working 
with felling costs for ponderosa pine, found that for a given tract 
the number of days' felling time may be determined from an 
equation of the form Y = aX\ + &X 2 where Y is felling time, 
Xi the number of trees felled, and X 2 the sum of squares of tree 
diameters. To data on number and diameter of trees felled per 
day by each crew — data which can be taken by the crew itself 
with comparatively little cost — Hasel fitted the above equation 
by the method of least squares. He was thus able to obtain crew 



300 RESEARCH IN THE ECONOMICS OF FORESTRY 

time and cost curves by diameter classes at a fraction of the cost 
which the usual time-study techniques would necessitate. Ac- 
curacy of the method seemed equal to that of time studies. 
Since the method permits obtaining felling time by tree diam- 
eter and also accomplishes a certain separation of fixed and 
variable costs, extension of this technique to other production 
processes appears quite promising. Choice of the equation form is 
obviously a most important prelude to this technique. 

Data from secondary sources require particularly careful exam- 
ination in the light of study methods and goals. Accounting pro- 
cedures are not always amenable to cost-study objectives, yet 
data supplied by the accountant are frequently the only type 
available to the economist. Cost aggregates compiled by the ac- 
countant are often useless for economic studies, and unless access 
may be had to the original raw accounting data, certain objec- 
tives may be impossible to attain. For this reason, choice of the 
specific firm or operation to be studied is an important pre- 
liminary, and the research worker must have full and close co- 
operation of company officials if the required data are to be ob- 
tained. 

For certain types of studies, it may be necessary to enlist the 
aid of trade associations, which can frequently obtain data other- 
wise unavailable to the research worker. Other sources often over- 
looked might be the Department of Labor, the Department of 
Commerce, and the Bureau of the Census. These and other 
government agencies have compiled valuable cost data which, 
though perhaps unpublished, may still be made available. 

One other problem should be mentioned here — that of ob- 
taining data representative of more than the specific operation 
studied. Obviously, a superior operation should not be presented 
as typical, but the determination of what is typical of the area or 
industry in question is one of the more difficult problems facing 
the investigator of costs. In wood-using industry, where com- 
paratively little work has been done, this problem is itself worthy 
of considerable research effort. 

Analysis of data. There are two general approaches to the cost 
problem: the accountant's and the economist's. The basic tool 
of analysis for either is cost classification. Both approaches re- 
quire the separation of costs into two broad classes: fixed, often 
called overhead or indirect costs, and variable, or direct costs. 
But the basis by which the accountant makes this classification 
is different from that used by the economist. 



HARVESTING AND PROCESSING 301 

The cost accountant, interested in measuring costs, has built up 
a system of cost classification based on convention, judgment, 
and ease of measurement, by which each cost can be classified. 
Thus costs such as taxes, rent, electricity and other utilities, pay- 
ments to administrative and sales personnel, and many other 
items are classified as fixed, while payments for hourly wages, 
materials, etc. are termed variable costs. It is recognized that the 
cost accountant does not classify costs in quite the simple and 
arbitrary manner indicated here, that other classes of costs are 
recognized, and that the classification is modified to fit the needs 
of the particular situation. However, for clarity in the argument 
to be presented, these details, though admittedly significant in 
the majority of cases, are omitted. 

The accountant's approach leads directly to the study of unit 
costs. Since cost-accounting activities are typically confined to 
the measurement of total costs, or convenient subdivisions of 
them, these unit costs are usually presented on a total basis — a 
combination of both fixed and variable costs. 

The economist approaches the problem of costs through the 
determination of marginal, rather than unit, costs. Like the ac- 
countant, the economist separates costs into fixed and variable 
categories. But when dealing with a specific study, the investiga- 
tor of marginal costs must ask, Will this cost change under the 
impact of the decision to be made or the alteration proposed? If 
it will not change, it is a fixed cost and thus is not germane to the 
problem. If it will change, it is a variable cost, and the deter- 
mination of the amount of change is a principal objective of the 
economist's study. 

No analysis of cost data can be made, or secondary data inter- 
preted, without clear recognition of these differences in concept. 
The principal distinction between the two approaches is the 
classification and treatment of fixed costs. Unlike the accountant 
who has devised rules and conventions to separate fixed costs 
from variable, the economist can make no general cost classifica- 
tion. His classification will vary with almost every study he un- 
dertakes. To the economist there are few costs that can invariably 
be classified as fixed, and the number of costs so classified will 
decrease as the time period is extended. In the long run there can 
be no such thing as a fixed cost. 

Not only will the time period under consideration change the 
economist's classification, but the scope of the study itself — or 
the nature of the decision under examination — will also make 



302 RESEARCH IN THE ECONOMICS OF FORESTRY 

changes imperative. The short-run variable cost of the firm's 
direct labor, for example, would probably be considered a fixed 
cost to the community; and obviously some of those costs classed 
as variable when the decision is one regarding permanent plant 
expansion will be classed as fixed if the decision is one between 
alternative processes of manufacturing a given product. Perhaps 
the most important characteristic of costs that the research worker 
should bear in mind is that any classification of costs will hold 
good only within the context of the study for which the classifica- 
tion was framed, or at best for studies in the same category. 

These two approaches and the differences between them have 
been emphasized here because the analytical procedure to be 
followed determines to a large extent the approach taken. Though 
either provides guides to most managerial decisions, results yielded 
by a total-unit-cost study are of much more limited usefulness. 
The total-unit-cost study might be looked upon as a method of 
providing a rough approximation to the general cost problem — 
an approximation that can be achieved relatively quickly amid the 
complexities of a modern timber enterprise. 

The marginal cost approach, though more difficult in many 
respects and in some ways subject to more restrictive assump- 
tions, nevertheless lends itself more readily to extension beyond 
immediate study objectives. At present, it is the only accepted 
approach to those broader problems such as profit maximization 
for the firm, the response a firm should make following changes 
in costs of certain input factors, or the probable effects on output 
of certain cost changes. 

Once the desired approach has been determined, the appro- 
priate cost classification can be made. After this step, often a 
difficult one, most of the analysis usually takes on a routine as- 
pect, consisting, in the one approach, of summing all costs en- 
tailed in the production of a product unit, and, in the other, of 
summing the variable costs of the particular process and deter- 
mining their rate of change as the process is varied. 

The analysis is not complete until the results have been in- 
terpreted. No guide to interpretation of results can be offered 
here; it is much too dependent on both study methods and ob- 
jectives. The cost-study report, however, should always include 
careful definition of the costs studied, as well as a complete de- 
scription of the type of firm, operating conditions, time span in- 
volved, etc. Should immediate use of study results require some 
type of cost allocation, it must be made most carefully, and a 



HARVESTING AND PROCESSING 303 

full statement of the reasons for the allocation attached. Only 
through carefully made and equally carefully reported cost studies 
of specific cases can a body of data be built from which costs 
representative of an industrial segment or a region may be de- 
termined. 

Special problems. Any cost investigation in forestry may re- 
quire a combination of the techniques of economic analysis, en- 
gineering, accounting, and mensuration. The variability of study 
objectives limits the usefulness of any single example that might 
be presented, but certain problems occur rather frequently in 
such research. A few of these are mentioned below. Some are un- 
solved, and few have any unique solution. 

Because the variation of cost with changing tree or log size is 
an important factor in most studies, problems of mensuration 
are commonly encountered. Normally the unit will be the board 
foot or the cubic foot. If the board foot is chosen, the investigator 
must decide whether mill tally or some log scale is to be used. If 
the study is to have more than extremely limited aims, the prob- 
lem of conversion from one scale to another is sure to arise — a 
problem that has no simple solution, since conversion factors 
vary with log diameter. Utilization and recovery vary from mill 
to mill; hence the use of mill tally as a base introduces complica- 
tions if comparisons between mills are contemplated. If cubic 
measure is selected — and this is the better choice in most studies 
— the investigator must decide on type of formula to be used, 
accuracy of measurements to be taken, treatment of logs with 
excessive taper, inclusion or exclusion of bark, and similar mat- 
ters. Use of secondary data is frequently complicated by incom- 
plete knowledge of these mensurational details. 

The wide variety of species, grades, sizes, and finishes produced 
by most mills poses a problem that needs no elaboration. Ob- 
viously, careful designation of the product is required. 

Costs are more useful if stated in units such as man- or machine- 
hours, since various wage or machine rates may then be applied. 
Ordinarily some statement of costs in monetary terms will be 
required to meet the immediate objective of the study, but this 
statement should be secondary. 

Qualitative differences are difficult to evaluate. Several meth- 
ods of differentiating between trees or logs of different qualities 
have been proposed, but none has achieved widespread ac- 
ceptance. Such differences, however, should be observed if cost 
data are to be of maximum usefulness. Similarly, the many lum- 



304 RESEARCH IN THE ECONOMICS OF FORESTRY 

ber grades produced and the wide spread in their market value 
make costs by lumber grade desirable for supply studies, but sepa- 
ration of these grades through the different productive processes 
approaches, in many mills, a physical as well as a logical impossi- 
bility. 

Differentiation between qualities of labor or machines is also 
a difficult task. Adequate sample data treated by the more power- 
ful statistical techniques may permit a few comparatively large 
studies to develop standards by which these factors may be 
evaluated, but no such standards are now available. 

References. (1) Hasel, A. A.: Logging cost as related to tree 
size and intensity of cutting in ponderosa pine; Jour. Forestry 
44, 8, pp. 552-560; 1946. (2) Black, John D., and Albert G. Black: 
Production organization; xi, 646 pp.; New York, 1929. (3) Clark, 
J. Maurice: Studies in the economics of overhead costs; xiii, 
502 pp.; Chicago, 1923. (4) National Bureau of Economic Re- 
search, Committee on Price Determination: Cost behavior and 
price policy; xix, 2$6 pp.; New York, 1943. (5) Bennett, Merrill 
Kelley: Farm cost studies in the United States, their develop- 
ment, applications, and limitations; Leland Stanford Junior Univ. 
Misc. Pub. 4; 289 pp.; Palo Alto, CaL, 1928. (6) Stigler, George 
J.: Production and distribution theories; the formative period; 
vii, 392 pp.; New York, 1941. 

57b. THE MARGINAL TREE OR LOG— Allyn M. Herrick 

Purpose. To determine the characteristics of the tree or log 
that is economically acceptable for harvesting and manufacturing. 

If maximum profit is to be realized from manufacturing timber 
products, it is necessary to identify the standing tree or log which 
is economical to harvest. Diameter is the usual criterion employed 
in distinguishing the marginal tree or log; quality, other than 
that attributable to size, is also significant. 

Definitions and principles. Two broad classes of cost are direct 
costs, that vary in the aggregate directly with output, and in- 
direct costs, that are fixed in the aggregate and tend to vary, per 
unit of production, inversely with output. "Direct costs," in the 
words of J. M. Clark (cited), ". . . are costs visibly traceable to 
a given job or order or class of business . . . merely by watching 
the process. Certain materials go into certain finished products 
and certain workmen (and certain machines) spend certain defi- 
nite amounts of time in working them up. On the other hand, 
the work of the central office, the power plant, watchmen and 
and sweepers, and the sales force, is not so directly traceable. 



HARVESTING AND PROCESSING 305 

These costs are indirect, though they may vary with changes in 
business." 

The key problem is to identify the breaking point between a 
tree or log that is economical to harvest and one that is not. This 
point is readily noted to be that at which the sales-value curve 
and the direct-production-cost curve intersect. Only those direct 
costs are considered which are incurred in converting the item 
— e.g., a log — to the form in which its sales value is assigned — 
e.g., lumber. In general, the latter should be the form in which 
the product leaves the business. The curves are derived from stud- 
ies of cost and value by tree or log size and quality. A tree or 
log meeting the size and quality specifications for the point where 
these curves intersect is the poorest one which would be economi- 
cal to harvest. Direct costs are recovered, but the conversion 
surplus (57c) of sales value over direct costs is zero. Harvesting 
of smaller or less desirable trees would entail direct costs in 
excess of value — i.e., would result in a negative conversion sur- 
plus. 

Indirect costs sometimes may be incurred for the purpose of 
lowering direct costs. Only in this manner can indirect costs 
influence the marginal timber product. In the case of an inacces- 
sible stand of timber, for example, because direct costs of trans- 
portation are infinitely high, all products of the stand cost more 
to harvest and transport than can be realized from their sale. 
If transportation is made possible through expenditure of money 
on an access road — an indirect cost — certain products may be- 
come operable as a result of the reduction in direct transportation 
costs. Marginal products will evolve. Improvement of the access 
road to a higher standard will increase safe speeds, thereby cut- 
ting direct hauling costs. This lowering of direct costs will alter 
the marginal product, and a poorer product will now have suffi- 
cient sales value to return its direct cost. It is the lowering of 
direct costs, and only incidentally the raising of the indirect costs, 
that causes the change in the marginal timber product. 

Relation to the field. Historically, the determination of the 
marginal timber product has been done as a part of studies of the 
financial aspects of partial cutting. Conversion surpluses have 
been calculated from the unit costs of harvesting and processing 
and the corresponding sales values of products. These conversion 
surpluses help to fix the relative financial desirability of operating 
in timber of various sizes and qualities. The intensity of cutting 
on any area must be governed, in some measure, by them. 

Analytical appraisal of stumpage value demands a considera- 



306 RESEARCH IN THE ECONOMICS OF FORESTRY 

tion of conversion surplus. The maximum stumpage revenue per 
acre always results when a stand is cut to the economic diameter 
limit, or in other words, when only the sizes and grades showing 
a positive surplus are removed. Hence the marginal tree, the 
economic cutting limit, and the point of maximum stumpage 
revenue per acre are identical. 

Many unit-cost studies are aggregate cost studies; no recogni- 
tion is given to the costs of converting the individual sizes into 
salable products. These studies can show that the average or 
over-all cost of manufacturing a unit product — say, one thousand 
feet of lumber — is $30 for a particular enterprise operating in 
timber of a specified character. Further, they can identify the 
fact that of this aggregate cost, $25 is the total of the direct-cost 
elements. Companion studies of lumber-grade yields can likewise 
determine the average sales value per unit of volume produced. 
If the over-all lumber value turned out to be $40 per thousand 
feet, board measure, when aggregate cost averaged $30, the su- 
periority of value over cost would be clearly evident for the aver- 
age unit of volume turned out. The unprofitability of certain of 
the volume units — lumber from logs or trees of low value, pro- 
duced at relatively high cost per unit of volume — is obscured, 
however, in the averages. This is not to imply that unit-cost 
studies have no utility in marginal-product evaluation, but rather 
that many aggregate-cost studies could well be supplanted by 
cost investigations in which the sizes and grades of logs or trees 
are kept separate, and which thus are aimed directly at a de- 
termination of the marginal log or tree. 

Data needed, sources, compilation, and analysis. Investiga- 
tions of the marginal timber product require data that will pro- 
vide, after analysis, direct costs, sales values, and conversion 
surpluses for the different log or tree size and quality classes. 
Some of this information can be obtained from the records of 
an enterprise, or from census-type contacts; however, the ma- 
jority of the basic data must be gathered by direct field observa- 
tion and measurement. Because of the diversity among logging 
chances and among milling or other manufacturing establish- 
ments, past studies have characteristically yielded data that were 
more or less unique, and general application of research results 
has been impossible, in many instances, for want of data on nu- 
merous basic variables in final reports. 

Future research into the subject of marginal timber products 
might well be so constituted as to permit wider application of 



HARVESTING AND PROCESSING 307 

results. Regional studies, carefully stratified within the universe 
of conditions obtaining — for instance, segregated according to 
size and type of operation — could be of general usefulness. Pub- 
lication of basic rates and other physical-unit data would make 
possible the adaptation and extended application of such in- 
formation, thus helping to justify the tremendous cost of this 
type of research. 

The first step involves an operating-cost analysis. Hourly costs 
are calculated in man-hours, crew-hours, machine-hours, or some 
other unit. These hourly rates are broken into variable and 
fixed components, because both components are not usable in 
all cost calculations. A truck is under pay, for instance, while 
being loaded, yet it is not being operated in the same sense as 
while it is actually in motion carrying logs. Thus the stand-by 
cost is the only portion of the hourly machine rate that is charge- 
able to the loading operation, whereas both fixed and operational 
components must be used in finding the cost of hauling. Hourly 
costs for all operations in the harvesting and manufacturing proc- 
esses are obviously dependent upon economic conditions; hence 
they must be correlated carefully with these conditions. 

Time required for the various operations in the harvesting 
and manufacturing of any product is ascertained through direct 
field observation. Crews are clocked while engaged in felling and 
log-making, for example, and the necessary mensurational at- 
tributes of the trees or logs are recorded with the operating time. 
While it is generally recognized that tree grade or log quality 
influences production time and cost rather significantly and should 
therefore be given consideration in future investigations, most 
studies have heretofore considered quality only as it has affected 
sales value. Species also has been disregarded in most cost studies, 
though necessarily used as a determinant of value. 

Production time, then, has been correlated with tree or log 
size; other attributes of the trees or logs have been considered as 
typifying the operation. Length of skidding distance and degree 
of slope are required where pre-haul time is investigated. Simi- 
larly, in other phases of logging and milling, pertinent data, 
in addition to time, need to be noted. 

For each operation, sufficient time data are recorded to warrant 
the preparation of a regression of time on tree or log size where 
time differences exist. If grades or species are segregated, separate 
regressions are required for each. No great amount of extrapola- 
tion or interpolation should be attempted with these regressions; 



308 RESEARCH IN THE ECONOMICS OF FORESTRY 

data that are adequate in amount and range must be secured from 
field observations. The time data are generally recorded in man- 
minutes, machine-minutes, or other units comparable with those 
used in the operating-cost analysis. 

Where operations are performed on a composite of several logs, 
attempts to allocate the cost of the operation to the individual 
logs are of doubtful validity. In hauling, for instance, the load 
must be characterized as a whole with respect to the sizes of logs 
of which it is composed, for logs are only rarely segregated by 
size for the hauling operation. To characterize the load, it should 
be possible to use some such measure as log run — number of logs 
per unit of volume — as an index to the number and volume of 
logs per load and hence the cost of hauling. In any case, the job 
is one of measuring the marginal cost of the operation as affected 
by log combinations of different size. 

In addition to the time data, information should be gathered on 
the relative amount of delay time incurred in the normal pursuit 
of any operation. Effective working time may comprise only 60 
percent of the entire working day on a skidding operation, for 
example, while it may constitute 80 percent of the total time 
involved in felling and bucking (James, cited). When delay time 
is specified for any operation, it is ordinarily treated as though 
it were functionally related to log or tree attributes. However, 
total-time data for an operation such as log loading are applicable 
solely to the particular circumstances prevailing when the time 
data were collected. To reduce these data to the more widely 
applicable terms of working time, it is necessary to know the 
percentage of delay time. 

Often the identity of separate trees and logs is maintained all 
the way through the harvesting and manufacturing processes, 
although this is never easy to do. Unless the investigators have 
control over the movement of materials from the stump to the 
manufactured product — and this is likely to yield results that are 
atypical — the follow-through of individual trees or logs is an ex- 
tremely costly undertaking. Time-study personnel must be col- 
lecting data simultaneously at many different locations. It is 
usually more economical — and results are more satisfactory — to 
collect data in sufficient quantity to insure a reliable regression 
for one operation, such as log loading, before collecting time data 
for another operation. The only caution necessary in this pro- 
cedure has to do with the attainment of reliability in the regres- 
sions for the separate operations. 



HARVESTING AND PROCESSING 309 

Hourly costs are applied directly to the time read from the 
regressions to find the total costs. The hourly rate for felling and 
bucking, for instance, is applied to the time trend for this opera- 
tion. When all similar regressions have been converted to cost, 
they are pooled in order to give the direct-production-cost curve 
for all operations. In the event that labor is paid on a piece-rate 
basis or operations are conducted on contract, differential costs 
are neither identifiable nor useful, since the flat rate per volume 
unit applies to all sorts of trees or logs. Because the time required 
for certain operations varies so radically with log or tree size, 
however, some use has been made of variable piece rates; to be 
equitable, rates must be higher on the smaller sizes (23 a; also 
Kirkland and Brandstrom, cited). 

In place of time studies for determining cost by log size, Mat- 
thews, in Management of American Forests (cited), suggests a 
simpler alternative. Over-all or average direct cost per unit prod- 
uct: is often readily derivable from the records of a firm for which 
a marginal-product evaluation is sought. The aggregate of all 
direct costs of production over an extended period of time, di- 
vided by the number of units produced in the same period, will 
give a fairly reliable estimate of average direct cost per unit. If 
there is also available a time or cost regression over log size for 
another firm operating in comparable timber with the same class 
of labor and type of machinery, then such a regression can be 
used as a "base trend" for the firm under scrutiny. The over-all 
direct cost for the latter firm is applied to the relative time (cost) 
regression that serves as the base trend. The technique uses only 
the shape of the basic time (cost) curve; actual direct costs in 
dollars are made to depend upon the specified over-all or average 
cost for the particular firm being investigated. 

Another phase of marginal-product determination is that con- 
cerned with product value. Most forest products vary in value 
according to grade; so the quality yield from trees and logs is 
fully as important in margin investigations as is the cost of 
conversion. Regardless of the product — whether posts, ties, or 
lumber — grade-yield studies are necessary for the correct assign- 
ment of value. Average lumber quality varies with tree and log 
size; values by size are therefore requisite to precise definition of 
the marginal tree or log. 

The necessity for manipulating several different grades in lum- 
ber-value studies has tended to complicate the determination of 
value yields wherever these yields have been investigated. In 



310 RESEARCH IN THE ECONOMICS OF FORESTRY 

some recent studies (Gevorkiantz and Scholz, Herri ck, cited), 
the investigators have sought to eliminate the requirement that 
lumber yields be segregated into four or more standard grades by- 
assigning an average quality index, based upon relative values 
for the several grades, to the lumber — or other product — yield 
of a tree or log. These studies recognize that relative value differ- 
ences among lumber grades tend to be essentially constant, how- 
ever radically current dollar values may fluctuate. A single expres- 
sion of average quality yield, easily converted to dollar value, 
greatly simplifies the study of product values by log or tree size 
and grade. 

While lumber is being tallied according to standard grades for 
value appraisal, data are also recorded that will show volume 
production or overrun. Knowledge of overrun is necessary for 
conversion of costs and values to a common base, either log scale 
or mill tally. Stumpage values are usually found in terms of log 
scale; consequently the costs and values used in margin studies 
are most often expressed per unit of volume, log measure. 

To the relative yields of the several lumber grades from trees 
or logs of the different sizes are applied the proper sales prices. 
In this manner the average sales values for the various sizes are 
determined. By subtracting the direct costs from the sales values 
for corresponding sizes and grades, the conversion surpluses are 
found. 

References. Technique: (i) Byrne, J. J., R. J. Nelson, and 
P. H. Googins: Cost of hauling logs by motor truck and trailer; 
Pacific N.W. For. and Range Exp. Sta.; 112 pp.; Portland, Ore., 
1947. (2) Chapman, Herman H., and Walter H. Meyer: Forest 
valuation; xii, 521 pp.; New York and London, 1947. (3) Day, 
B. B.: A suggested method for allocating logging costs to log 
sizes; Jour. Forestry 35, 1, pp. 69-71 ; 1937. (4) Gevorkiantz, S. R., 
and H. F. Scholz: Timber yields and possible returns from the 
mixed-oak farm woods of southwestern Wisconsin; Wis. Dept. 
Conservation Pub. 521; 72 pp.; Madison, 1948. (5) Herrick, A. 
M.: Grade yields and overrun from Indiana hardwood sawlogs; 
Purdue Agr. Exp. Sta. Bui. 516; 59 pp.; Lafayette, 1946. (6) 
James, Lee M.: Time study technique; Jour. Forestry 47, 9, 
pp. 708-712; 1949. (7) Matthews, Donald Maxwell: Management 
of American forests; xv, 495 pp.; New York, 1935. (8) Matthews, 
D. M.: Cost control in the logging industry; 374 pp.; New York, 

x 94 2 - 

Specific operations: (9) Wiesehuegel, E. G.: Power chain saws 



HARVESTING AND PROCESSING 311 

and manual crosscut saws in the production of hardwood logs; 
Southern Lumberman 172, pp. 46-50; 1946. (10) Garver, R. D., 
and R. H. Miller: Costs of plain and quarter-sawing southern 
white oak; Forest Products Laboratory Pub. R986; Madison, 
Wis., 1936. (11) Krueger, M. E.: Factors affecting the cost of 
tractor logging in the California pine region; Cal. Agr. Exp. Sta. 
Bui. 474; 44 pp.; Berkeley, 1929. (12) Reynolds, R. R. : Pulp- 
wood and log production costs as affected by type of road; Jour. 
Forestry 38, 12, pp. 925-931; 1940. 

General: (13) Brundage, M. R., M. E. Krueger, and Duncan 
Dunning: The economic significance of tree size in western Sierra 
lumbering; Cal. Agr. Exp. Sta. Bui. 549; 61 pp.; Berkeley, 1933. 
(14) Clark, J. Maurice: Studies in the economics of overhead 
costs; xiii, 502 pp.; Chicago, 1923. (15) Garver, R. D., and R. 
H. Miller: Selective logging in the shortleaf and loblolly pine 
forests of the Gulf states region; U. S. Dept. Agr. Tech. Bui. 
375; 54 pp.; Washington, 1933. (16) Kirkland, Burt P., and 
Axel J. F. Brandstrom: Selective timber management in the 
Douglas fir region; 122 pp.; Washington, 1936. (17) Rapraeger, 
E. F.: Results and application of a logging and milling study in 
the western white pine type of northern Idaho; Univ. Idaho Bui. 
33> J 6; 55 PP-; Moscow, 1938. (18) Reynolds, R. R., W. E. 
Bond, and Burt P. Kirkland: Financial aspects of selective cut- 
ting in the management of second-growth pine-hardwood forests 
west of the Mississippi river; U. S. Dept. Agr. Tech. Bui. 861; 
118 pp.; Washington, 1944. 

57c. OPTIMUM UTILIZATION OF THE TREE— Roy B. Thomson 

Purpose. To determine the most profitable utilization of a 
tree when it may be directed toward more than one use or prod- 
uct. 

Nature of problem. While a single product, most often saw- 
logs, usually provides the chief outlet for timber in a given area, 
there are frequently additional outlets, such as veneer logs, co- 
operage bolts, poles, and pulpwood. The most profitable use of 
a given tree may be for a single product, or for several products 
in various combinations, depending upon the species, size, and 
quality of the material and upon the market. If several outlets 
exist and diversified utilization is feasible, multiple utilization 
usually yields a greater total net return than one-product utili- 
zation. What are the most profitable products to take from a 



g 



iven tree, and at what sizes should a shift be made from one 



312 RESEARCH IN THE ECONOMICS OF FORESTRY 

product, or combination of products, to another? It is assumed 
here that a separate decision is made concerning which trees to 
cut and which to leave, and that the only remaining question is 
how best to utilize the trees to be cut. 

Relation to other topics. In addition to guiding operating de- 
cisions, studies of this type yield information essential to the 
solution of other problems. For example, solution of topics 57b 
and 5jd must be based on specific patterns of timber utilization, 
such as are investigated here. Valuation of timber (<#?) must in 
part be based on information of this type. A closely related topic 
{42a) investigates the relative profitability of current utilization 
compared to retention of the tree as forest growing stock. 

The method and its application. To compare the profitability 
of alternative products or combinations of products, it is necessary 
to start from sales values (78) at the first points of delivery con- 
stituting a market, then work backward to the standing tree or 
first point where a choice between products can be made, de- 
ducting direct (variable) costs (ffa) from these values. The most 
profitable product or combination is that which offers the great- 
est surplus of sales values over direct costs (the greatest ''con- 
version surplus" — Guttenberg and Duerr, cited). If timber is 
to be sold as stumpage, no working backward is necessary; stump- 
age bids for the alternative product combinations may be com- 
pared directly. 

As an example, it may be supposed that the purpose of an 
investigation is to determine the optimum use of each of the 
various sizes and qualities of southern pine trees in an area where 
markets exist for sawlogs, peeled poles, and unpeeled pulpwood. 
For this purpose a number of trees are selected for measurement 
sufficient to assure representation of all sizes and qualities that 
are merchantable for any of the three products. For potential 
saw-timber trees, the diameter is recorded, as well as the number 
of logs — preferably by grade — up to the limit of sawlog mer- 
chantability, and the number of sticks of pulpwood that can be 
cut from each sawlog and from the portion of the tree above the 
point of saw-timber merchantability. Each of these same trees 
from which a pole can be produced is also tallied by pole length 
and pole class. In addition, the trees below the limit of saw- 
timber potentiality are recorded for poles and for pulpwood, and 
those trees that will not make poles are tallied for pulpwood only. 
For each size-quality class of trees, the volumes of the different 
products are computed, and the conversion surpluses estimated 
for the alternative forms of utilization. Conversion-surplus tables 



HARVESTING AND PROCESSING 313 

may be set up, if desired, for various levels of price and cost. 
Best utilization can be determined directly from these tables for 
a tree of any class. 

This general procedure has many applications, and adaptations 
are possible to meet special situations. The determination of 
optimum use is improved by recognizing log grades where there 
is a market for graded logs or where the forest owner operates a 
mill and sells his logs in the form of lumber. Separate analysis 
by pole classes may show greater value than for sawlogs in cer- 
tain large sizes of poles for which prices are especially high. The 
analysis of optimum use may be made for individual trees rather 
than for classes of trees, or for logs or bolts classified according to 
species, size, and quality. Such a log and bolt classification may 
be used in the woods to determine the limits of utilization in the 
stems of felled trees and to direct the flow of cut products toward 
the various markets. 

Reference. Guttenberg, Sam, and William A. Duerr: A guide 
to profitable tree utilization; Southern For. Exp. Sta., Occasional 
Paper 114; 18 pp., processed; New Orleans, 1949. 

57d. ECONOMICS OF LOGGING DEVELOPMENT 

To analyze costs of alternative methods of harvesting forest 
products from a specific type of tract in order to determine the 
most economical method for that sort of operation. 

The study compares the net returns obtained from a logging 
enterprise under alternative systems of operation. For example, 
it may compare the costs and returns from tractor logging with 
those from high-lead logging on a given tract. Or it may compare 
alternative systems of road development in a forested area. Varia- 
tions in both the quantity and kinds of the agents of production 
are involved. It is approached through case studies and the 
application of synthetic methods of analysis. The scope of such 
studies may be narrow, to guide a specific decision for a particular 
firm; or it may be broader, attempting to set up principles of 
organization applicable to representative firms and conditions. 
In either event the studies consider matters closely related to the 
problems of forest management, particularly those of topics 41, 
42 a y and 48. 

58. INVESTMENT DECISIONS OF FOREST-PRODUCTS FIRMS— Paul J. Weber 

Purpose. To determine the economic advisability of possible 
investments in forest-products plant and forest lands. 

General considerations. The motive for investment is the wish 



314 RESEARCH IN THE ECONOMICS OF FORESTRY 

for income. The size of the return that is set as an objective in 
determining the advisability of investment will depend upon pre- 
vailing interest rates, the apparent risk involved, and the profit 
that could be made in other lines with due allowance for risk. 

There is considerable emphasis on prices and price fluctuations 
in the following discussion. The prices of most forest products 
fluctuate rather widely depending on business conditions. Price 
fluctuations thus give rise to one of the important risks attached 
to investments in forestry or forest industry. 

i. Rate of return. Corporations usually establish as an in- 
vestment guide a rate of return that they wish to earn on new 
investments in plant or property. This rate usually is based on 
the income available to stockholders. This income is the profit 
left after deducting all costs, including depreciation and deple- 
tion, state and federal taxes on income, and interest on any 
money to be borrowed or dividends on any preferred stock to 
be issued to finance the project. 

The investment that is used to calculate the rate of return can 
be determined in two ways: (a) working capital plus land plus 
the total investment in plants, buildings, and equipment; (b) 
working capital plus land plus one-half of the investment in plants, 
buildings, and equipment. The first method is not used exten- 
sively because it does not allow for the gradual amortization of 
plants, buildings, and equipment through depreciation. Because 
of this amortization, the investment in plants, buildings, and 
equipment is eventually reduced to zero. Thus the average in- 
vestment for the years required by the amortization is one-half 
the total investment. The second method, therefore, is preferable 
to the first. 

Here the investment in plants, buildings, and equipment will be 
referred to as plant investment. 

If the prospective rate of return is below the guiding rate, then 
the new investment is not made unless offsetting considerations 
prevail. Among offsetting considerations may be the necessity of 
providing facilities: (a) To produce raw material adequate to 
insure the supply for a plant, (b) To convert by-products with 
limited markets to materials that can be sold more easily. While 
the rate of return on the conversion operation as such may be 
low, the investment may still be advisable if the by-products 
cannot be disposed of in any other way. (c) To maintain a com- 
pany's normal share of a market. 

2. Establishment of the guiding rate. The first approach is to 



HARVESTING AND PROCESSING 315 

tabulate the yields available on the following classes of invest- 
ments: (a) long-term government bonds, (b) high-grade corporate 
bonds, (c) high-grade preferred stocks, (d) high-grade common 
stocks. The classes are tabulated in order of increasing probable 
yields, which here reflect increasing degrees of risk. The yields to 
be considered by a new corporation should be yields after allowing 
for income taxes. 

The exact figure of return after taxes that is established as a 
criterion will depend on (a) prevailing conditions, (b) the famili- 
arity of the officers of the corporation with forests and the in- 
dustries which consume forest products, (c) the estimated risks 
involved in the investment. 

An individual, as distinct from a corporation, has an entirely 
different tax problem in setting a guiding rate of return. If he is in 
the very high income-tax brackets, the rate of return before 
taxes that is required to provide a reasonable return after taxes 
may well be in excess of any reasonable expectations. In such 
instances, the individual is interested in an investment in which 
income can be postponed until he retires, or in an investment 
which provides the possibility of capital gains. The purchase of 
an understocked tract of forest land may well provide him with 
such an opportunity. 

3. Influence of the source of funds. Whether an established 
corporation expands its investment will depend on the amount 
of the funds available for investment. These funds are obtained 
by means of (a) retained earnings, (b) reserves set aside out of 
earnings, and (c) financing. 

If financing is required to obtain the funds, the type and the 
cost of financing must be considered. If bonds or preferred stock 
are issued, the prospective rate of return must exceed by a con- 
siderable margin the amount paid in interest or preferred dividends. 
This excess is required to (a) provide a margin of safety, (b) pro- 
vide for funds to retire bonds or preferred stocks that are issued 
to finance the investment if the sinking fund provisions of the 
new bond or preferred-stock issue exceed the amount that is to 
be set aside each year out of earnings for the amortization of 
plant, (c) provide the stockholders of the company with income 
to compensate for the risk assumed in making the new investment. 

If the company already has a heavy capitalization in preferred 
stock and bonds, it would be prudent to do the financing through 
the issuance of common stock. Under such circumstances the 
earnings from the new facilities per share of the common stock 



316 RESEARCH IN THE ECONOMICS OF FORESTRY 

to be issued should not be less than the current per-share earn- 
ings — or normal per-share earnings if current earnings are in- 
flated. The price of a company's stock may be, so low that a 
large number of shares would have to be issued to supply funds 
for investment. If market conditions are such that new financing 
of any type is difficult, then the expansion may have to be post- 
poned. 

4. Factors influencing a favorable rate of return. The success 
of any investment depends on future developments pertaining 
to the product involved and to general business conditions. Fairly 
correct appraisals of the following are therefore essential: (a) 
Future average prices, costs per unit, overhead expense per unit, 
profit margins per unit, tax rates, and the rate of return after 
taxes, (b) The investment required, including working capital. 

(c) The period over which plant facilities are to be depreciated. 
This period will depend in part on the expected rate of product 
obsolescence and in part on the period of time in which the 
investor wants to get back the amount of money he invests in 
the plant. The length of plant life usually is set at a conservative 
figure. When this is done, and the products fail to become obsolete 
within the interval of time that is set, very large rates of return 
are usually derived on the remaining investment in working 
capital and land after the plant has been completely depreciated. 

(d) The average amount of money that will have to be spent for 
large replacements and to keep the plant equipment modern. 
The annual depreciation set aside must be sufficient to amortize 
the plant within the designated period of years and must also be 
large enough to allow for replacement of equipment that has worn 
out or that has been superseded by units that are much more 
efficient. There is a tendency to overlook this element of the 
annual depreciation charge. 

5. Other investment criteria. Since estimates of future profits 
and rates of return are subject to error, they must be reinforced 
by favorable prospects such as the following: (a) A rapid rate of 
growth in demand for the product or products in the past, and 
an expected greater than average rate of growth in the future. 
When the growth rate is rapid, the danger of excess plant capacity 
is minimized, (b) A low purchase cost or a low construction cost 
for plant facilities. Except for occasional bargains, a low invest- 
ment cost can usually be obtained only when business is depressed, 
(c) A low cost of production as compared with competitors. This 
can be obtained by a new, low-cost manufacturing process or by 



HARVESTING AND PROCESSING 317 

advanced forest management which utilizes the best possible 
practices, (d) Favorable business conditions. Where growth in 
product demand is about equal or falls short of the growth of 
output in the country as a whole, a high level of general business 
activity is one very important determinant of profitability of an 
investment, (e) A long-term rise in the price level. There is greater 
assurance of the profitability of an investment in a plant which 
consumes forest products or in forest land if the long-term price 
trend is upward, (f) The ability to obtain competent and ex- 
perienced managers for the properties in which the investment 
is to be made. 

Essentially, the investment of funds resolves itself into a rela- 
tive appraisal of the risks and the prospective rates of return that 
can be derived from the various investment opportunities that 
are available. If studies of all available investment opportunities 
are equally thorough, they will show which field offers the greatest 
rate of return after allowing for the degree of risk. 

As a practical matter, companies or investors tend to minimize 
the risks in those fields in which they have experience, and to 
exaggerate the risks in unfamiliar fields. The surveys that are 
made for investments in unfamiliar fields, therefore, usually are 
much more extensive than those made for investments in fields 
that are familiar. Consultants should be called upon when new 
fields of endeavor are considered. Men with experience also should 
be hired if the investment actually is made. 

Firms or individuals do not usually invest in unfamiliar fields 
unless compelling motives such as the following are present: (a) 
The need of assuring a raw-material supply. This motive has led 
paper companies to invest in forest land, (b) Development of a 
new line that would complement the company's existing lines. 

When investments are made by those who lack experience in 
the forest industries field, the investor often purchases an es- 
tablished enterprise and keeps the existing managers. These man- 
agers are retained until the purchaser obtains sufficient experi- 
ence to modify policies. 

Companies with a wide diversification of activity usually are 
in the best position to appraise new investments. Because of their 
experience in many lines, their records will provide important 
clues to the relative rates of return and the relative risks of the 
various fields in which they operate. 

Where past experience in a field is lacking, the main objective 
is to obtain the facts upon which conclusions are to be based and 



31 8 RESEARCH IN THE ECONOMICS OF FORESTRY 

to obtain information on the operating problems that are likely 
to arise. This perspective is particularly difficult to obtain for 
forest land because so many intangible factors are involved in 
proper forest management. The trees that are planted are har- 
vested over a period of years. Long-term considerations, therefore, 
are paramount. Moreover, risks are high because fire, insect, and 
disease hazards probably cannot be controlled as easily as most 
hazards in a manufacturing plant. 

Investment in plants consuming forest products. Where plant 
expansion is to take place, the problem usually is not very complex 
if no investment in forest land is involved. Under such circum- 
stances the company is familiar with the markets for its products, 
and a marketing organization is already in existence. Moreover, 
it should have a fairly good knowledge of the outlets for addi- 
tional output. The company also knows all about the pitfalls 
that exist in the industry which might be overlooked by someone 
going into the business for the first time. It has accurate informa- 
tion on costs and on selling prices, and is aware of the extent of 
the fluctuations that have taken place in its selling prices in the 
past. It can estimate rather accurately how much costs can be 
reduced by the new and more efficient unit that may be installed. 

The main problem of such a company therefore is confined to 
forecasting the rate of increase in the demand for the product 
involved (95), the prices of the product (86) and of the necessary 
raw materials, and the rate of return. 

When a company for the first time decides to build a plant for 
the utilization of forest products, its greatest difficulty will be in 
obtaining requisite information unless, perchance, it substitutes 
some forest product such as wood for some previously used ma- 
terial such as steel. Except for these instances of substitution of 
the products of the forest for other materials previously used, the 
corporation will (a) be unfamiliar with the market for the product, 
(b) lack a marketing organization, (c) be obliged to estimate the 
cost of production instead of having actual figures, (d) be obliged 
to determine the extent of its raw material supply which is to 
come from the forest. Corporations that are merely substituting 
forest products for some other material also will have to estimate 
this last item. 

In making its investment survey, a company determines the 
outlook for the price of the product it will produce and of the 
forest raw materials it will consume. The price analysis of the 
forest raw materials involves the following determinations: (a) 



HARVESTING AND PROCESSING 319 

Whether the market can absorb the additional supply of the com- 
modity to be produced without affecting prices materially. A 
shortage of the product involved, or growing demand, probably 
provides assurance that prices will not be adversely affected, 
(b) Whether the requisite additional forest raw materials can 
be obtained without raising their prices appreciably. This will 
necessitate a forecast of, first, the demand of the new plant for 
forest products within its area of operation; second, other demand 
for forest products within the area; and third, the total demand 
for forest products of all types in the area as compared with the 
potential supply {6). (c) The extent of past fluctuations in the 
raw-material prices and in the prices of the product to be produced 
in relation to business conditions and the general price level (82, 
83). (d) Whether any new factors have arisen which would pre- 
vent supplies of needed forest products from responding to changes 
in the general price level as they did in the past. 

The investment survey also involves an analysis of the follow- 
ing items: (a) The influences that will determine plant location, 
such as labor supply, wage rates, freight rates, property taxes, 
and the accessibility of raw materials. Plant location and freight 
rates may be a really important determinant of profitability when 
freight rates amount to a substantial part of the price of the 
materials involved (2, 68). (b) The profit that might have been 
obtained from operating the plant in the past if such an invest- 
ment had existed under the wage and other cost conditions of the 
time. Only low-cost operators can survive several years of adverse 
conditions, (c) The long-term rate of growth, the expected future 
rate of growth, and the probable fluctuations in the demand for 
the product that is to be manufactured. The actual future rate of 
growth will be one of the very important influences determining 
the profitability of the investment, (d) The methods of selling, 
the type of marketing organization required, and the probable 
marketing costs. 

When a company enters a new operation in which forest prod- 
ucts are utilized, it is in a much safer position if it has a new 
process which will permit lower costs than those of competitors, 
or if it has developed new products not manufactured by anyone 
else and which are not likely to show wide price fluctuations. An 
established company entering the field of forest products for the 
first time may start out on a pilot-plant or small-plant basis to 
determine the extent of the market and to answer other problems. 

The marked expansion of the paper and pulp industry in the 



320 RESEARCH IN THE ECONOMICS OF FORESTRY 

South has been largely the work of established companies that 
had the know-how and were looking for additional sources of 
pulp to meet the demand for paper. Wherever chemical processes 
are to be used, or where extensive fabrication is necessary for the 
final product, it cannot be emphasized too strongly that the know- 
how to produce a product is absolutely essential before the plant 
investment to utilize forest products is made. This know-how 
must be acquired either from some other firm or by extensive 
research. 

The above discussion assumes that the object of the company 
is continuing operations in the manufacture of a forest product. 
Sometimes, however, profits in a few good years may permit the 
complete amortization of a plant with enough left over to provide 
a favorable return on investment. In any such instances, the 
plant can be sold or abandoned at the end of the period. If such 
prospects exist, then a distinctly short-term point of view can 
be taken in determining the advisability of plant investment. 

Investment in forest land. The opinion of competent foresters 
should be obtained before any particular tract of forest land is 
purchased. 

I. Investment survey. An extensive survey is required to de- 
termine the advisability of purchasing forest land to provide raw 
materials for use in an established or projected plant. Such a 
survey may include studies of the following problems: (a) The 
prices of forest land. These are subject to wide fluctuations. A 
study of past forest-land values must be made to determine the 
timing of the acquisition and whether there is any danger that 
forest-land values will decline sharply (34, 49c). (b) How to 
obtain a forest area large enough to permit adequate production 
of the forest product in question. It is more economical to operate 
a single forest as a unit than to deal with scattered holdings, (c) 
Whether to build up a forest by buying land with small trees on 
it or no trees at all, or to purchase a well-stocked forest (41). 
If an understocked forest is purchased, the additional cost of 
bring it up to a well-stocked level must be estimated. When this 
cost is added to the current investment, the total can be com- 
pared with the cost of a fully stocked tract to determine the 
relative costs of the two tracts of forest land. A forest that is not 
well stocked cannot provide optimum yields for a number of 
years. This consideration alone may dictate the purchase of a 
well-stocked tract, (d) Whether the trees should be harvested by 
the purchaser or by contractors. 



HARVESTING AND PROCESSING 321 

Theoretically, the maximum return can be obtained from a 
forest by utilizing the trees for pulpwood, lumber, cross ties, 
poles, and, where possible, such other products as gum naval 
stores. To concentrate on any of these operations to the exclusion 
of all others would lower net return (57c). An investment in 
forest land to obtain a specified amount of a particular forest 
product, however, would have to be much larger if all products 
of the forest were marketed than if the forest were utilized for a 
single product. 

There are instances in which forest operations cannot be con- 
fined to one product. A forest owner who is interested in lumber, 
for example, may be forced to sell some trees or parts of trees for 
pulpwood, at least to dispose of thinnings. 

2. Collection and projection of data. To answer the many diffi- 
cult problems involved, the following steps are suggested: 

First, data on stumpage values for pulpwood, saw timber, 
poles, and other products should be collected for a period of years 
iy8). If the firm intends to harvest its own timber, then log 
prices should be substituted for stumpage values. 

The price movements of stumpage can then be related to 
fluctuations in the business cycle and to general price movements 
{82). Also, it will be possible to tell whether stumpage values for 
one purpose, such as lumber, tend to decline sooner in a business 
downturn than stumpage for other purposes, such as wood pulp, 
cross ties, and poles. 

After all the data have been collected and analyzed, it should 
be possible to project the future values for each type of stump- 
age based on various assumptions concerning general business 
activity (86). Since any specific predictions are subject to a wide 
margin of error, the investment must be considered under both 
favorable and unfavorable conditions. A corporation that owns 
and operates a forest to provide it with raw materials probably 
must continue to operate the forest whether conditions are favor- 
able or unfavorable. Certain expenses continue on any large forest 
investment even though no trees are harvested. 

Second, estimates must be made of the quantity of each par- 
ticular product that the forest can provide each year. 

Third, information must be collected on the cost of operation, 
cost of fire protection, and cost of the office to take care of the 
necessary records (jp, 41). What these costs would have been in 
the past can be estimated, once the current costs are known, by 
allowing for changes in wage and salary rates in the past. It is 



322 RESEARCH IN THE ECONOMICS OF FORESTRY 

possible then to determine for the last twenty or perhaps thirty- 
years whether the operation of the forest would have been profit- 
able, based on the prices that prevailed in the past. Perhaps the 
assumption will have to be made that the forest was well stocked 
at the start. If the forest is not well stocked, the money spent to 
build it up to the proper level should be regarded as an additional 
investment and not as an operating expense. 

3. Cost of harvested products. The cost of the timber that is 
to be harvested will include (a) the amount of depletion on the 
timber that is allowed by the federal government for tax purposes, 
(b) the amount of depreciation on new buildings and equipment 
used in the forestry operation, (c) the amount of forest costs 
that are of a noncapital nature. Income tax regulations will 
determine exactly how the subdivision between capital costs and 
noncapital costs is to be made. For example, if the trees are har- 
vested by the owner of the forest, the cost of harvesting the trees 
would be a noncapital expense. 

In the investment survey, an attempt should be made to calcu- 
late the costs per unit of output for each year. Such costs provide 
a means of determining the level of prices that is required to pro- 
duce a profit. For example, if pulpwood is to be the only material 
harvested, the estimated cost per cord of pulpwood can be calcu- 
lated for any year by dividing the estimated number of cords of 
pulpwood to be produced in that year into the sum of the follow- 
ing costs: (a) the total depletion and depreciation allowance for 
the year, (b) all other expenses of the forest during the year, ex- 
cluding those that are to be capitalized. The latter are added to 
the original investment in the property. The costs of harvesting 
the trees and preparing the pulpwood will be included with these 
other expenses unless pulpwood stumpage is to be sold. 

When a number of forest products are to be harvested, the 
calculation of unit costs involves costs that are common to all 
the products. The common costs include depletion and deprecia- 
tion, the costs of running the forest that are not capitalized, and 
joint harvesting costs — e.g., for large trees that are felled for 
lumber but that probably also provide some pulpwood. To avoid 
problems of allocating such costs, the investment survey may be 
made on the basis of the forest products as a group. The total 
cost of the forest products to be sold is deducted from the total 
proceeds from the sale of stumpage and the products that are 
harvested to obtain the net operating revenue. The uses which 
provide the largest net revenue determine which group of forest 
products should be harvested. 



HARVESTING AND PROCESSING 323 

When a forest cannot be operated on a sustained-yield basis 
because the growing stock is too young to permit many trees to 
be harvested, the rate of return in the early years of operation will 
be low. When this is so, the investment survey should contain 
estimates of the rate of return when the forest is mature enough 
to be operated on a sustained-yield basis. In calculating the rate 
of return, allowance should be made for income taxes. 

4. Determination of profitability of the forest. If forest opera- 
tions are to be confined to a single product, it is well to determine 
the number of years in which the operations would have been 
profitable and unprofitable in the past, and to make a similar 
estimate for future years. The same analysis should be made of 
the profitability of producing this product under diversified forest 
operations. In the latter case there should be fewer years in which 
a loss would be sustained. 

Owners of tracts of forest land often accept lower than maxi- 
mum rates of return in order to confine operations to one product. 
They do so because they do not want to make the additional 
investment in forest land that would be necessary to provide 
them with the quantity of the specific forest raw material that 
they would need if diversified forest operations were to be carried 
on. They thereby avoid the risk involved in the larger investment 
in forest land. Moreover, if owners confine production to the 
forest products they wish to consume, they can average the rate 
of return of the manufacturing operation with the rate of return 
of the forest. It may well be that the investment in the forest is 
to be made solely to assure a raw-material supply to protect the 
investment in manufacturing operations. 

In trying to analyze the levels of stumpage values and prices 
in unfavorable future periods, account should be taken of the 
increase in wage rates since past depressions. The most reasonable 
assumption to make is that stumpage values and prices during 
future periods of unfavorable business will bear about the same 
relation to forest costs as they did in past depressions. If, for 
example, the cost of operating a forest in a future depression is 
above the 1938 level by a certain percentage, then it is assumed 
that stumpage values as a group will be higher by about the same 
percentage. Stumpage values for each use would not necessarily 
show the same gain. The variations in stumpage values and 
prices between products has to be determined by an analysis of 
possible shifts in demand for each type of product. 

In weighing forest-land investment, the guiding rate of return 
should be set high enough to allow for the many risks that are 



324 RESEARCH IN THE ECONOMICS OF FORESTRY 

inherent in forest operation. Not only do prices of forest products 
fluctuate widely, but there are many intangible factors connected 
with the operation of a forest. There are dangers of fire, insect 
damage, and disease. Property-tax rates may be increased. The 
labor supply is uncertain, and it may prove to be more difficult 
to obtain labor on a large tract of forest land in an isolated area 
than on a small tract located near cities and towns. The rate 
paid to workers on forest land is generally below the rate paid to 
factory workers, but in times of prosperity labor tends to drift 
to manufacturing, and forest wage rates tend to rise relatively. 

5. Effect of size of investment on profitability. The individual 
owner of a small forest tract is probably in a better position than 
a large corporation during times of depression. If he manages the 
land himself along with other work, he incurs no overhead ex- 
cept that entailed in fire control. He is in a better position than a 
corporation to wait out the depression and permit his trees to 
grow. 

The labor-supply problem of a small operator also may be 
easier than that of a corporation with large holdings because the 
former's land may be closer to towns where labor is more freely 
available. Rural labor often prefers to live close to towns because 
of the recreation facilities that towns provide. 

Large-scale forest operations probably have a higher labor cost 
per hour than small-scale operations. They also have a relatively 
heavy overhead expense which can be avoided by small-scale 
operations. Large operators, however, usually carry on forestry 
practices more efficiently than do small operators. Such effi- 
ciency, theoretically at least, rewards the large-scale operation 
with a higher rate of return over a period of years. 

59. VERTICAL INTEGRATION IN FOREST- PRODUCTS FIRMS— R. W. Cowlin 

Purpose. To determine and describe the factors favoring and 
deterring vertical integration of forest industry, the conditions 
under which an integrated business is more profitable than an 
unintegrated one, and the effect of integration upon the social 
returns from the forest economy. 

Definitions. Vertical integration of forest industry is defined 
as the combination in a single business of two or more successive 
stages in the progress of the raw material to a finished manu- 
factured product. 

Relation to the field. Although studies in vertical integration 
of forest industry may be conducted as independent projects 
in many cases, they will not be definitive unless they are ac- 



HARVESTING AND PROCESSING 315 

companied by studies in horizontal integration (60), including 
diversified utilization of raw material at two or more types of 
processing plant operated within the same business. 

The student of vertical integration should have access to results 
of studies of the factors influencing investment decisions of forest- 
products firms (58) and of the optimum combinations of land, 
growing stock, and processing plants in an integrated business 
(jpa). If the firm is new, such studies should be made in advance 
of the study of vertical integration, or concurrently with it, if 
sound managerial decisions are to be made. If the firm is estab- 
lished, data presumably are available to show the basis for the 
decision made before the initial investment. 

Studies of vertical integration made independently will de- 
termine if it is more profitable to integrate vertically or to remain 
unintegrated, but will not show if greater profits can be realized 
by horizontal integration through employment of investment capi- 
tal available to the business and through greater use of existing 
managerial skills. 

Studies of vertical integration, regardless of whether they are 
supplemented by other research, are closely connected with studies 
of marketing and of the agents of production. 

Scope. Considering the wide range of conditions which sur- 
round studies of vertical integration, it is virtually impossible to 
generalize and categorically resolve all the favorable and adverse 
factors common to businesses attempting to decide whether to 
remain unintegrated or to integrate vertically. Nor can a universal 
set of practical conditions be determined under which an inte- 
grated business would be more profitable than an unintegrated 
one. The most satisfactory course of investigation probably is an 
actual case study. However, if no such opportunity exists, the 
student may hypothesize a situation and conclude a successful 
study on that basis. 

Case studies may be of individual firms, of groups of firms 
engaged in similar enterprises, or of area situations. 

As an example of an individual-firm study, a manufacturer of 
Douglas fir plywood relying upon open log markets for raw ma- 
terial may want to see whether it would be more profitable to 
own and manage timberland. Conversely, a timberland owner 
and manager may consider the establishment of a processing 
plant. The study may be undertaken by a going concern, a pro- 
spective investor in such a concern, or an individual researcher 
seeking to develop guiding principles for wider application. 

An example of a study of a group of firms occurs in the South 



316 RESEARCH IN THE ECONOMICS OF FORESTRY 

where mixed pine-hardwood forests are under management by 
members of the pine lumber industry. A study might show that 
the addition of a hardwood-lumber enterprise which would follow 
enlightened hardwood sawing practice as distinguished from pine 
sawing practice, and the further addition of flooring and handle 
enterprises based on hardwood lumber as raw material, would in 
general be good practice. Such a study can be made either of an 
actual group of firms or of a hypothetical situation. Associations, 
public agencies, or individual researchers can appropriately con- 
duct such studies, since opportunity exists for broad conclusions. 

The third type of study, that of an area situation, can be under- 
taken profitably by agencies such as chambers of commerce en- 
deavoring to promote forest industry in a community or limited 
area. An example might be a forest community in an undeveloped 
part of the West, whose timber resources are being drained to 
supply distant industries. The object of the study would be to 
determine those combinations of wood-using enterprises which 
would be profitable and attractive to investors and would also 
maximize the social returns. An independent researcher also could 
undertake such a study on either an actual case basis or a hypo- 
thetical basis. 

Data required. A wide range of data is needed for a study of 
vertical integration, much of which will have to be obtained 
directly from unpublished or original sources. First, detailed in- 
formation is required on the quantity, quality, and character of 
the raw material available to the main plant, not only currently, 
but also prospectively. From this point, study procedure will 
vary somewhat with the type of manufacture in the main plant, 
although the same general principles will apply. For example, if a 
sawmill is the main unit, grade-recovery information is needed 
to forecast the lumber output by quality, species, and size. After 
this information is in hand, consideration may be given to addi- 
tional manufacture. The mill output may be such that the most 
suitable additional facilities would be a sash and door factory, a 
molding plant, a box factory, or some combination of these or 
other supplementary plants. Based on the physical character of 
available raw material, information is next needed on the re- 
quired capital investment and probable operating costs of an 
additional processing plant with a capacity within range of the 
raw-material supply. Since remanufacturing often involves greater 
employment of skilled labor and management than the initial 
manufacture, the availability of workers with the necessary skills 
must be determined. Data are required on living and working 



HARVESTING AND PROCESSING 327 

conditions in the community before and after integration, unless 
the community is of such size that the additional industry will 
have no impact upon conditions. The competitive aspects of the 
proposed industry must be determined, including potential mar- 
kets and transportation factors. Requirements and supply of 
power and raw material other than wood used in manufacture 
must be known. Disposal of any new industrial wastes that may 
develop must be considered, and information on sanitary and 
pollution laws and costs of remedial measures collected. 

Collecting and compiling the data. Data sources will depend 
largely upon the type of study — case or hypothetical — and the 
stage of production being investigated. 

In an actual case study of a manufacturing plant such as a 
sawmill or plywood plant, data on the quantity and quality of 
raw material can be obtained from the company's forest inven- 
tory, if it is a timberland operator. If not, a survey of sources of 
supply must be made. However, the business doubtless has ade- 
quate knowledge of the raw material available to it. If the study 
is made on a hypothetical basis, raw-material data can be adopted 
from a number of sources, chiefly Forest Service publications and 
files. The exact source will depend upon the general locale of the 
study. With the exercise of ingenuity the student can find other 
sources of this material — e.g., operating timber-management com- 
panies, and schools of forestry maintaining experimental forests. 
The nature and extent of the raw material available to the manu- 
facturing plant will strongly influence the quantity and quality 
of the output of manufactured products. 

The source of data on the suitability of the output of a manu- 
facturing plant for remanufacture will depend upon the type of 
manufacturing plant. Generally such information can be obtained 
from the company under study or, on a hypothetical basis, from 
studies, both published and unpublished, of the federal forest 
experiment stations or the Forest Products Laboratory. Trade 
associations occasionally have such data. 

If a remanufacturing establishment is considering acquisition 
of a manufacturing plant, existing records of the company should 
give raw-material needs. Then the problem is to determine the 
type of supplementary plant which will supply these needs. The 
sources named above may be used for data on capital-investment 
costs and operating costs. In addition, large engineering and 
construction companies and machinery manufacturers frequently 
can supply much of this information. 

Data on labor supply are obtainable from the U. S. Department 



328 RESEARCH IN THE ECONOMICS OF FORESTRY 

of Labor and state departments dealing with employment and 
industry. Data on living and working conditions may be available 
from surveys by federal or local welfare and labor departments, 
but it may be necessary to make a field canvass of these factors. 
Market data are available from Bureau of Census publications, 
other Department of Commerce publications, trade association 
reports, Tariff Commission reports, U. S. Forest Service reports 
on lumber distribution and wood used in manufacture, and the 
industrial trade journals. Data on transportation can be obtained 
from Interstate Commerce Commission reports, railroad tariffs, 
the American Association of Railroads, individual transportation 
companies' tariffs and reports, and trade associations. 

Analysis of data. The first step in the analysis is to compare the 
profits, actual or estimated, from the unintegrated enterprise 
with those from the integrated enterprise. This can be accom- 
plished by preparing a tentative operating statement and balance 
sheet. Since the integrated enterprise will require more capital 
investment, consideration must be given to the financial structure 
of the enterprise, changes in tax situations, and the cost of the 
new capital and changes in business organization, including mana- 
gerial and technical skills. Using the cost-price data collected, an 
operating statement and profit-and-loss statement can be pre- 
pared. However, such a process may not fully reveal the relative 
advantages or disadvantages of integration. Analysis of trade 
contacts, organization, and experience of the business may show 
that these are limiting factors under one form of integration and 
favorable factors under another. Several trial calculations may 
have to be made before the optimum situation can be determined. 
From those processes the favorable and unfavorable factors can 
be determined, and if the result of the final calculation is negative, 
the conditions which would convert the integrated enterprise 
from an unprofitable venture to a profitable one can be isolated. 

In this analysis, the student should give special attention to the 
character and cost of the organization required to operate a 
vertically integrated business. On the one hand, there may be 
limitations in managerial capacity, business experience, trade con- 
tacts, or the like that will militate against integration. On the 
other hand, there may be organizational factors strongly favoring 
integration, as where the added enterprises do not call for greatly 
different managerial skill and experience, and where the trade 
channels for these added lines are those with which the firm is 
already familiar. 



HARVESTING AND PROCESSING 329 

If a case has been made for integration, the student may proceed 
with the evaluation of the social returns from the forest economy. 
This will consist of determining the changes in the character and 
composition of the population in the locality resulting from the 
influx of new workers, the demand for new or improved com- 
munity services arising from population changes, the relation of 
this demand to the increased tax base, the effect on stability of 
employment of greater diversification of industry and the op- 
portunity for skilled jobs to the youth of the community, the 
change in the service industries, and the greater opportunity for 
satellite industries. 

Form of results. One of the important results of the study 
will be a description of the methodology used, since the field is 
largely unexplored so far as published material is concerned. The 
description of the factors and conditions favorable and unfavor- 
able to vertical integration will be the copestone of the study and 
should be stated fully in quantitative and qualitative terms. 
The effect of integration upon the social returns from the forest 
economy will probably have to be described in qualitative fashion. 

References. For general principles the best references will be 
text books on production economics such as (1) Black, John D.: 
Introduction to production economics; xvi, 975 pp.; New York, 
1926. (2) Monographs of the Temporary National Economic Com- 
mittee under the general title of Investigation of concentration of 
economic power. 

59a. OPTIMUM COMBINATIONS OF LAND, GROWING STOCK, AND 
PROCESSING PLANTS IN AN INTEGRATED FIRM 

To analyze the effects on profit of variations in the ratio of 
investment in processing plant or plants to that in permanent 
timber-management facilities, for an integrated firm in a forest 
industry; and to determine optimum relationships between these 
forms of investment from the standpoint of a firm. 

The study concerns questions of the following types : Should the 
firm invest in timberland and growing stock up to the point where 
it is self-sufficient with respect to raw materials? Or should it 
depend in part on the open market for stumpage and log supplies? 
Should it concentrate on a single line of manufacture, such as 
lumber? Or should it diversify its output to include manufacture 
of pulp, plywood, or other products? If the latter, what particular 
kinds of products should be manufactured, and what should be 
the balance between them? Would it be profitable to add a new 



330 RESEARCH IN THE ECONOMICS OF FORESTRY 

manufacturing enterprise, such as a wood-flour plant, to utilize 
material now being wasted? Gr could the funds required be in- 
vested more profitably in further processing of products already 
being manufactured? The study is closely related to topics 58, 

59, and 60, but here the emphasis is on alternative methods of 
integrating. 

The approach will be that of marginal analysis, due account 
being taken of the nature of the firm's existing investments, 
manufacturing experience, and market prospects. As the optimum 
combination will depend heavily on particular conditions both 
as to these factors and as to the availability of timberland, the 
nature of market log supply, and the firm's experience in handling 
timber-management problems, the case method of study is ap- 
propriate. 

60. HORIZONTAL INTEGRATION IN FOREST-PRODUCTS FIRMS 

To determine the extent and kind of horizontal integration 
which has taken place among harvesting and processing enter- 
prises, to determine what factors have led to such integration, 
and to appraise the effects of integration on the profitableness of 
the enterprises and on the costs and returns to society. 

Horizontal integration refers to a combination of two or more 
enterprises, each engaged in the same stage of production and 
performing comparable functions, within a single firm. It may 
involve combination of several plants engaged in the identical 
function — e.g., the lumber manufacturing firm which operates 
several sawmills at different locations. Or the combination may 
consist of several types of plant, making different products, which 
supplement each other in some respect — e.g., a sawmill, a pulp 
mill, and a plywood plant, integrated so as to improve the effi- 
ciency with which raw material is utilized. 

The first step is to identify the firms in the study area which 
represent horizontal combinations and to determine their relative 
importance in the industry. Certain firms may then be selected for 
more detailed study. This will involve tracing the history of each 
sample firm to learn when integration took place, what considera- 
tions fostered it, and how profit experience has been affected by it. 
Conditions of stumpage supply, operating efficiency, marketing 
efficiency, or efficiency in managerial functions may bear on the 
problem. 

In order to determine the effects on society of such integration, 
attention will be given to its influence on costs of manufacture 



HARVESTING AND PROCESSING 331 

and quality of products (S/a), and on the distribution of income 
(8) , volume of employment (9), and other indexes of social costs 
and returns. 

61. PRODUCTION POLICIES OF FOREST-PRODUCTS FIRMS— 
R. H. Van Voorhis 

Purpose. To determine the factors affecting production policies 
of firms — such as stumpage and labor availability and cost, over- 
head costs, working-capital costs, transportation costs, and the 
market for the product — and to evaluate the significance of these 
factors as production determinants. 

Relation to the field. Timber grows, is harvested, made into 
useful products, marketed, and put to final use. The manufactur- 
ing process is but one link in the chain stretching from growth of 
timber to consumption of final product. Elsewhere in this volume, 
separate studies are suggested of the factors influencing entre- 
preneurial decisions to invest resources in the production of a 
given forest product (5$), and of the integration of the different 
links in the production chain (59, 59a). Another study (20) deals 
with the productivity of labor in forest-products industries. The 
problem in the present study includes the two more specialized 
questions of the effects of price changes and overhead costs upon 
production (55, 61 a). 

In the short-run period to which production policies are rele- 
vant, the demand for the product will largely determine the price 
at which various quantities can be sold, regardless of whether the 
market for the final product is competitive or monopolistic. The 
gross sales income is the source of return for all the factors of 
production, including growing the timber, harvesting it, and pro- 
ducing and selling the finished product. As supplies of virgin 
timber become exhausted, volunteer second growth and purposely 
managed stands must provide the raw materials for the forest 
products industries. If timber is to be grown commercially by 
private industry, stumpage prices must cover costs of production. 
Anything which makes the manufacturing process more efficient — 
less costly — leaves more of the selling price of the final product 
for stumpage, and improves the prospects of private forestry. 
On the other hand, being in a residual position from the standpoint 
of income, the forest earnings — hence the management — are 
affected by production maladjustments earlier and to a greater 
extent than are the earnings of other factors. To the extent that 
needed economic data are not available to the management of 



331 RESEARCH IN THE ECONOMICS OF FORESTRY 

forest-products firms, or are not being considered properly in 
reaching production decisions, that segment of forestry will suffer 
and be under- or overdeveloped in relation to other segments of 
forestry and to the economy as a whole. It therefore becomes im- 
portant to discover the factors which should and those which 
actually do influence production policies, and the information 
which is or might be made available. 

Plan of the study. Market and production factors — including 
the supply of the principal raw material, timber — are likely to 
differ so widely among producers of different forest products that 
separate studies should probable be made, following the same 
general pattern, for particular items such as veneer, plywood, 
pulp, cross ties, cooperage, and different types of lumber. 

Each study might start with a description of the industry (54), 
covering such points as: the nature of the product, its principal 
uses, potential additional uses, and present and prospective sub- 
stitutes; the form of raw material presently used, its present and 
future supply, and possible substitutes; the production process, 
degree of labor skill required and its availability, and machinery 
in use or being developed; the location of the industry with respect 
to raw material and the market for the finished product, trans- 
portation problems and facilities; and the merchandising methods 
in use or possible to increase the use of the product. The competi- 
tive situation in the market for the finished product should be 
described, and in the markets for stumpage, labor, and other 
factors of production as well. In the light of this information, the 
researcher should be able to suggest the factors which might be 
expected to influence production decisions and to form an idea 
of their probable relative weights. 

Statistics and comment are to be found in government publi- 
cations, particularly those of the U. S. Forest Service, Bureau of 
the Census, and the Departments of Agriculture, Commerce, and 
Labor. Trade and professional journals are a source of statistics, 
articles, and comment. Trade associations should be consulted 
for both published and unpublished information, and as wide 
contact as possible should be sought with individuals and firms 
in the industry, through correspondence and personal interviews. 
Data obtained from these latter sources can often be disguised, 
perhaps by dividing all figures through by a constant, so that 
they need not disclose any confidential information. 

On the basis of the above sources, the student should seek to 
determine the relationships which have prevailed in the past 



HARVESTING AND PROCESSING 333 

between volume of output and costs of production, prices of 
finished products, and the other relevant factors. Correlation 
between the various statistical series should be measured. Among 
the questions to which answers might be sought are the following: 
Is the demand for the particular product nearly the same at differ- 
ent national-income levels, or does it change substantially as 
income declines in a period of depression? How do costs behave 
with relation to the price of the product in a period of changing 
national income? What changes in product prices and in produc- 
tion costs lead to changes in output, and how large a change in 
output — and in what direction — follows a change of a given per- 
centage in prices or in costs? Is the margin between price and 
costs per unit greater in a period of prosperity for business as a 
whole or in a general depression? In which period and to what 
extent is the margin between total sales and costs greater for the 
firm? In which period is the margin greater for the entire in- 
dustry? Is market and cost information of this nature available? 
If it is available, are the managements of the different firms aware 
of this fact, and to what extent do they make use of these data? 
Are decisions made on the basis of such economic analysis as is 
possible, or by rules of thumb and " hunch"? 

Answers to these questions concerning what happens in practice 
should be compared with the results the researcher expected on 
the basis of his preliminary review of the industry, and significant 
differences investigated and explained. In conclusion, recommen- 
dations should be made for improving the quality and quantity 
of the economic data and for securing a more widespread and 
more effective use of this information by management in reaching 
production decisions. 

In addition to these studies, there should be an intensive in- 
vestigation into the ways through which individual firms attempt 
to increase their share of the total market. This will probably have 
to be done by personal contacts with management personnel in 
the particular firms and examination of their private records to 
the extent permitted. A few representative firms should be sought 
out, with strong assurances that confidential data will not be dis- 
closed to competitors. Guthrie (cited) has provided a good example 
of research integrating confidential information with published 
sources. 

Reference. Guthrie, John A.: The economics of pulp and paper; 
xi, 194 pp.; Pullman, Wash., 1950. 



334 RESEARCH IN THE ECONOMICS OF FORESTRY 

61a. INFLUENCE OF OVERHEAD COSTS OF FIRMS ON PRODUCTION 
POLICY 

To analyze the character and extent of overhead costs in a firm 
or group of firms and to determine the effect of such costs on 
production policy. 

Overhead costs are defined as those which are independent of 
the rate of output. Problems of determining them are discussed 
in topic 57a. The present study determines first the kinds and 
extent of overhead costs. As noted in topic 57a, a classification of 
overhead costs is needed because certain costs which are regarded 
as overhead for some kinds of managerial decisions — e.g., rate 
of production from an established plant — may be regarded as 
variables for other purposes — e.g., appropriate scale of plant. 
After overhead costs have been classified, those classes pertinent 
to problems of production policy are selected for further study. 
Each class of cost is measured and then expressed as a ratio to 
total cost in order to facilitate comparisons between firms and 
groups of firms. 

The study then examines the question of how overhead costs 
influence output. To what extent and under what circumstances 
does the presence of such costs result in production at levels 
where total costs are in excess of returns? Do overhead costs 
influence the ability or the desire of firms to adjust output in 
response to price changes? Do they influence the "mixture" of 
products which comprise the output of a firm? Do overhead-cost 
considerations influence the types of plant which are built and, 
through them, the nature of production? 

Case studies of individual firms will throw light on the extent 
of overhead costs and on how they affect output decisions. By 
considering an array of cases with different proportions of over- 
head to total cost, significant differences in production policies 
may become apparent. Or groups of firms may be classified in 
accordance with the extent of their overhead costs. Differences 
in production policy between such groups may then be sought. 
Either type of analysis is subject to difficulties because of differ- 
ences in accounting methods between firms and groups of firms. 
Unless rather complete cost records are available, significant clas- 
sification of firms may be hampered because of lack of comparable 
data. 



CHAPTER VI 



The Meeting of Supply and Demand 
for Forest Products 



This chapter considers the area in which the demands of con- 
sumers for forest goods and services (Chapter VII) are met by 
the supplies of these goods and services furnished by producers 
(Chapters IV and V). Attention is first turned to the market — its 
general composition, its geography, its agencies and their methods, 
and the characteristics of the goods exchanged. Consideration is 
then given to two principal matters determined in the market: 
first, prices of products; and second, quantities of products ex- 
changed. The marketing process holds a pivotal position in the 
forest economy not only because it is the means of getting much 
of the economy's output into the hands of consumers, but also 
because it determines the major tangible rewards — hence incen- 
tives — for forest management. 

The marketing, prices, and quantities of forest products alone 
are treated here. Those of the agents of production are dealt with 
in Chapter III. 

The consideration of marketing and of prices and quantities 
is necessarily confined to those forest goods and services that 
enter into exchange — notably timber and its products and the 
lesser tree commodities such as naval stores. Watershed, wildlife, 
and recreational services, even though they are in some instances 
bought and sold, are not covered in the present chapter. For these 
services, exchange and its counterparts are examined as incidentals 
to production, mainly in Chapter IV (e.g., 47, 49, and their sub- 
topics). Similar treatment is given the marketing of forest forage. 
The marketing of livestock, even when forest produced, is omitted 
altogether, being considered outside the field of the economics of 
forestry. 

As in the case of forage and livestock, so also in the case of 
wood and other marketed tree products the economics of forestry 
is regarded as excluding those aspects and those problems that 
are remote from the forest and have a negligible bearing upon 
forest management. Thus, for example, the present chapter covers 
in some detail the buying and selling of lumber raw material, 



336 RESEARCH IN THE ECONOMICS OF FORESTRY 

devotes more limited space to lumber wholesaling, and has little 
of a pointed sort to say about retailing. Again, the marketing, 
prices, and quantities of pulpwood stumpage and pulpwood are 
of prime interest; those of pulp, of lesser interest; and those of 
paper, of comparatively little. Still again, the chapter has something 
to say about the financing of local timber buyers by other market 
agencies, but gives little attention to the financing of these agen- 
cies, in turn, by the banks. In each case, as the subject becomes 
less and less directly related to forest management, the place is 
reached where pointed research is more appropriately done under 
some discipline other than the economics of forestry. 

MARKETING 

The research topics in this section consider the whole process of 
changes in title to forest products. They are general as to product 
or agency, and necessarily specific only as to area. The first of the 
four topics is an area study of very broadest scope, which serves 
to set the tone for the entire chapter. 

62. FOREST-PRODUCTS MARKETING IN AN AREA— Arthur S. Todd, Jr.* 

Purpose. To study the distribution of forest products in an area: 
to describe and explain the location, structure, organization, and 
operation of forest products markets, the functionaries operating 
therein, their methods, and the volume and terms of sales — all 
as related to the character of products, the efficiency of the 
marketing process, and other factors — and to analyze changes in 
the marketing system. 

The objective of this description and analysis is to determine 
whether the marketing system accurately reflects consumers' de- 
mands back to producers, and producers' supply forward to con- 
sumers, and whether it moves products from producers to con- 
sumers at lowest cost. If inefficiencies are discovered, the analysis 
will attempt to throw light on ways to remedy them. 

Definitions. Topic / describes the delineation of a study area. 
For the purposes of the present study, the area may be described 
as follows: (a) It is notable primarily as an origin of rough forest 
products which flow from it to marketing and processing centers. 
This is in contrast to a principal or central market area which 
receives raw material (66) and distributes finished or semifinished 
products (6f). (b) It is reasonably homogeneous as to character of 

* The author gratefully acknowledges the advice and encouragement of 
Geoffrey Shepherd, Iowa State College. 



MEETING OF SUPPLY AND DEMAND 337 

products produced, types of markets served, and marketing pro- 
cedures, (c) In s^e it may range from a county — or a timber- 
shed tributary to a plant or group of plants — to a region. The 
requirement of homogeneity limits its size. 

Distribution will be understood to include all the marketing 
institutions, functionaries, and activities involved in the movement 
of products from local forests up to the point where these products 
leave the study area. It is usually necessary, however, to extend 
the study beyond the boundaries of the area to various buyers, 
handlers, and even consumers who influence local marketing. 
Aside from this, no attempt will be made to trace the geographic 
movement of products once they leave the area (6j). Knowledge 
of interregional competition is also essential to a thorough under- 
standing of the local situation (j). 

Relation to the field. Studies of markets and marketing pro- 
cedures may be undertaken by timber owners for their own 
information. Knowledge of local markets and marketing condi- 
tions and trends is essential to the formulation of long-term 
forest-management policies and plans, as well as to the negotia- 
tion of immediate sales {41, 42). 

Local markets may be studied also by forest-products manu- 
facturers or users to assist them in selecting plant sites or procure- 
ment territories, or by common carriers analyzing present or 
future needs for their services (2). 

Public agencies may study the marketing system to determine 
how it can be improved. This involves (a) discovering inefficiencies 
in the marketing process and the reasons for them; (b) identifying 
market factors which tend to reduce or limit returns to timber 
owners or forest-products handlers or manufacturers, or which 
increase the cost of forest products to consumers, and analyzing 
their causes; and (c) determining what market conditions lead 
to practices in timber management, marketing, processing, or 
utilization which are inconsistent with the public welfare. 

Finally, the marketing system may be studied by agencies, 
public or private, interested in developing integrated forest utili- 
zation in an area to take full advantage of its raw material re- 
sources and to eliminate waste. 

Data needed. The kinds and amounts of data required will vary 
according to the purpose of the study. For a full analysis of the 
marketing process and its problems, the following are probably 
the minimum: 

1. Background, to show the position of forests and forest prod- 
ucts in the economy. 



338 RESEARCH IN THE ECONOMICS OF FORESTRY 

a. Acreage of forest and its distribution both geographically 
and by class of owner (j/). 

b. Condition of the forest, its accessibility to transportation 
and centers of population, timber species, size class, quality, etc. 

c. Extent of community dependence upon forest products for 
livelihood (8). Class and grade of forest products produced and 
the stage to which manufacture is carried — e.g., finished versus 
rough or semifinished products. What are the community's other 
sources of income? 

2. Location, structure, organization, and operation of forest- 
products markets by type of product — i.e., markets for standing 
timber; markets for Christmas trees and greens, nuts and berries, 
bark, etc.; markets for logs, pulpwood, and other rough timber 
products; markets for lumber, veneer, and other finished or semi- 
finished products. 

a. Timber owners, independent loggers and similar producers 
of rough forest products, manufacturing plants and other proces- 
sors (such as treating plants), railroads, truckers, commission 
agents, wholesalers, retailers, ultimate consumers, etc. 

b. Relative importance of the various markets and products 
as measured by volume of transactions. Raw-material require- 
ments of forest-products processors and users, by class and grade, 
present and prospective (Sp). 

c. Methods of selling and buying, specifications, and terms of 
sale. Character and extent of product classification and grading 
at all stages of distribution (7^). 

d. Influence of rough- or finished-product marketing policies, 
practices, and methods of financing on marketing at other levels 
of product refinement. 

e. Geography of the flow of products through and from the 
area (66, 68). 

f. Forest-products prices and costs of marketing (78, 64). 

3. The general efficiency of markets and the relative bargaining 
strength (7/, 72) of the various classes of buyers and sellers of 
forest products. 

a. Attitude of landowners toward their timberland. What sort 
of forest management do they practice (48)? Do they grow forest 
products primarily for their own use or for sale? What are their 
supply responses (50, 5^)? 

b. Degree to which markets are organized. Are products bought 
and sold by standardized classes and grades at established prices, 
or does valuation depend largely on individual judgment and 
appraisal? 



MEETING OF SUPPLY AND DEMAND 339 

c. Relative ability of buyers and sellers to measure volume and 
to appraise quality and value. 

d. Sellers' knowledge of markets available, the specifications 
for products, and the current prices. Buyers' knowledge of mar- 
kets and supplies of products offered for sale. 

e. Amount of marketing assistance available to timber owners 
from public foresters, etc. 

f. Financial position of buyers and sellers as reflected, for ex- 
ample, in the stability of market outlets and in the ability of 
sellers to withhold timber or products from the market. 

g. Degree of competition among buyers; monopoly situations. 
For example, sawmills owned or controlled by one or two lumber- 
concentration yards or remanufacturers may dominate the mar- 
keting in an area, or the same effect may result from acquisition 
of a large block of timber by one landowner. 

h. Severity of competition from other areas or regions, and the 
effect of such competition on the local marketing situation (j). 
For instance, can the area provide buyers with the products they 
want, in worth-while quantities, and with the assurance of quality 
equal to that of competing regions? Is the pattern of timber owner- 
ship favorable? What is the effect of transportation services and 
costs (68)} Does the area have a past history of successful market- 
ing (65)} 

Sources of published data. Publications of the Forest Survey 
of the U. S. Forest Service contain statistics on acreages by land- 
use class, forest acreages, timber volumes, and numbers of wood- 
using plants and operations and their consumption of wood. They 
also include forest description and other helpful information. 

Industrial and trade directories and such publications as the 
Lumbermen's Red Book may be helpful in preparing preliminary 
lists of plants. State foresters can also be of service in this respect, 
especially in states that require the licensing of timber operators. 

The Census of Agriculture offers statistics useful in judging the 
importance of farm woods and the value of woodland products. 
It also provides data on the character of farm tenure, the sizes of 
individual holdings, and the sources and amounts of farm income. 
In some regions, farm woodlands are a principal source of forest 
products. 

The Census of Manufactures publishes summary information 
on numbers of plants, volume and value of raw materials con- 
sumed and of products produced, and amount of employment. 
However, this information is seldom sufficiently localized to be 
more than indicative. 



34-0 RESEARCH IN THE ECONOMICS OF FORESTRY 

Field investigations. Most of the data must be collected in the 
course of field canvasses. Ordinarily, the first task is to trace the 
channels of distribution (6j). In areas where the first stage in dis- 
tribution is the funneling of logs, bolts, and other rough timber 
products from many timber owners and loggers to a comparatively 
few sawmills, pulp mills, dealers, and other concentrators, the 
easiest way to start is to locate and interview the concentrators. 
Through them, the raw material may then be traced back to its 
sources and the manufactured products on to the next points of 
distribution, which again will be more numerous and widely 
scattered. 

Care and skill in interviewing the primary concentrators will 
be amply repaid. In many respects, they are the key to the 
distribution of forest products and are in a position to provide 
some information on every item of data needed. Primary con- 
centrators are at the focal point of local distribution by virtue of 
their function as assemblers of raw products, and are immediately 
responsible for many of the local marketing 1 practices. They are 
usually involved in whatever marketing problems exist and are 
frequently aware either of the problems themselves or of their 
symptoms. In addition, they have an intimate knowledge of local 
situations and events, especially those bearing on the forest and 
on forest products. 

Successful interviews require a systematic approach, preferably 
with a formal questionnaire. A standard set of questions encour- 
ages careful advance planning, helps to eliminate interviewer bias 
and to avoid omissions, and assures comparability of returns. 
Once these standard items of information are obtained, the bal- 
ance of the interview may be devoted to discovering and exploit- 
ing to the full each concentrator's special knowledge and ex- 
perience of local marketing methods and conditions. 

The types of information that might be sought from primary 
concentrators are suggested by the following: (a) Kinds and 
amounts of products purchased or handled, (b) Names and ad- 
dresses of timber owners or loggers from whom purchases were made 
during some definite period such as a quarter-year or a year, 
together with the volume received and the price paid for each 
purchase, (c) Kinds and amounts of products sold, (d) Names and 
addresses of local customers as well as the principal outside 
markets served, with the volumes sold and the prices received, 
(e) Conditions under which purchases are made and paid for — the 
terms of sale; where, when, to whom, and by whom is payment 



MEETING OF SUPPLY AND DEMAND 341 

made, and in what form (cash, check, or nonmonetary)? Does the 
buyer finance his own purchases or is the money advanced by 
some one of his customers against future orders? If the latter, 
does he pay interest on the loans? Does the buyer gain title to his 
purchases immediately or over a period of time? (f) Ways of 
making sales and receiving payment. Are the concentrator and 
any of his customers organized or related in any other way than 
as seller and buyer? 

The lists of timber sellers compiled as above can be enlarged if 
desired by questioning each seller about neighbors who may have 
sold timber. Recourse can also be had to county clerks, with 
whom timber leases are often recorded. Examination of these 
leases, which are open to public inspection, is advisable in any 
case, for it offers the researcher an opportunity to familiarize 
himself with the terms of sale and the forms of contract in use. 

Interviewing timber owners and sellers is likely to prove the 
most difficult and time-consuming phase of the study. Here, 
again, a formal questionnaire should be used. In addition to the 
advantages just mentioned, it also permits the application of 
case-study technique with the individual sale as the unit of study. 
As to intensity, either all the sellers in the area or a sample of them 
can be interviewed. 

One approach to the problem of market imperfections from the 
standpoint of the timber owner is to obtain for each study sale 
the unit price actually realized on the true volume sold (78), and 
as precise a description as possible of the timber sold — the species, 
quality, accessibility, etc. The assumption is that any local varia- 
tions in price not accounted for by differences in these physical 
characteristics of the commodity sold are attributable to differ- 
ences in the conditions under which the sales were made or in the 
attitudes or approaches to bargaining of the individual sellers 
and buyers. The object is to identify and analyze these latter 
differences in the light of what has been learned from interviewing 
the buyers. The sort of factors that may prove significant are 
indicated by the following incomplete list: (a) How did negotia- 
tions start? Who initiated them — the buyer or the seller? (b) 
Did the seller receive more than one bid? If so, how many? Or did 
he set the price himself? (c) Did the seller have a measure or an 
estimate of the volume involved to guide him in accepting or 
rejecting bids? (d) Why did the seller decide to sell when he 
did — e.g., did he sell because the timber was ready to cut, the 
market favorable, the bid price right, or because he needed money? 



342 RESEARCH IN THE ECONOMICS OF FORESTRY 

(e) Was the timber sold for its highest use? Was the seller aware 
of all the markets available to him? 

The market functionaries further along the chain — e.g., re- 
manufacturers, wholesalers, retailers; and consumers of lumber, 
veneer, and other products — can now be located and interviewed. 
Their names and addresses will have been obtained from the 
primary concentrators. The interviews should be directed mainly 
at tracing distribution and learning the marketing organization 
and methods. Information bearing on interregional competition 
may also be gathered at this stage. A standard questionnaire is 
less suitable here because of the variety of firms and individuals 
likely to be encountered, but some of the questions to be asked 
are not greatly different from those suggested for the primary 
concentrators. 

Analysis of data. Analysis consists of two steps. The first is the 
critical examination of each stage in the distribution of forest 
products to discover inefficiencies and maladjustments, with par- 
ticular attention to what can be learned by comparing any al- 
ternative marketing procedures that have been reported. Study 
of the relations of price as the dependent variable with the meth- 
ods and circumstances of sales, as revealed by the case studies, 
is one technique. Mean prices can be computed for various combi- 
nations of independent variables — methods and circumstances of 
sales — to reveal differences. If the sample is large enough — say, 
ioo or more sales — some statistical analysis is feasible. 

In analyzing current marketing methods, the possibility must 
be anticipated that none approaches the ideal of efficiency or 
cost, or adequately conveys consumer demands to timber growers. 
Thus, the comparison of observed marketing techniques may have 
to be supplemented by more subjective methods of analysis, 
such as comparison with some assumed normative standard (64). 
But whatever the method, it should lead to definition of the 
marketing problems. It should also permit evaluation of current 
trends and changes in distribution methods, and of their relation 
to changes in the character of the raw material and manufactured 
products, as well as to the marketing problems uncovered. A 
case in point is the gradual exhaustion of large saw timber with 
the resulting shift from large- to small-mill production of lumber 
and greater reliance on lumber concentrators and other middle- 
men. 

The second step in the analysis consists of special study of 
particular problems that merit additional attention. As the analy- 



MEETING OF SUPPLY AND DEMAND 343 

sis proceeds, certain indications or trends may be observed or 
questions arise which require more intensive investigation than 
is possible with the data at hand. For instance, if financial assist- 
ance to small sawmills from lumber wholesalers appears to have 
an important effect on timber marketing, provision should be 
made for supplementary study of this aspect. Since this may 
involve return visits to individuals previously interviewed, the 
possibility of a revisit should be anticipated in closing the initial 
conversations. 

Presentation of results. The results of a full analysis of forest 
products marketing in an area might be presented in a report 
containing the following sections : 

I. The area — description. 

a. Over-all economic and social conditions. 

b. Extent and character of the forests. 

c. Importance of forests and forest products to the economy. 
1. Forest-products markets and their relative importance. 

3. Market institutions and functionaries and how they operate. 

4. Marketing problems. The statement of each problem should 

describe the reasoning from data to conclusions, and should 
show: 

a. Why it is a problem, in terms of lost real income. 

b. If possible, what is its importance in terms of dollars 

per thousand board feet, etc. 

5. Possible remedies for the problems revealed: a discussion 

of the conclusions growing out of the research that may 
be of value in the task of policy formulation. 
Reference. Duerr, William A.: The economic problems of for- 
estry in the Appalachian region; xi, 317 pp.; Cambridge, Mass., 
1949; especially Chs. V-IX. 

63. DISTRIBUTION OF A PRODUCT FROM FOREST TO CONSUMER— 
John A. Guthrie 

The purpose of this study is to describe and explain the distri- 
bution of a forest product — pulpwood, pulp, and paper as an ex- 
ample — from stump to mill and from mill to consumer. The 
study may be made for a limited area of origin, or for a broad 
area such as the United States, or without pointed reference to 
area. Again, the study may be made for a particular segment of 
industry, such as kraft pulp, or it may concern larger groups of 
products. The following statements concern all types of pulp- 
wood and wood pulp and paper, in a study of broad geographic 



344 RESEARCH IN THE ECONOMICS OF FORESTRY 

scope. Only some of the questions that may be taken into account 
in this field of research will be considered here. It is convenient to 
divide the study into two parts: the movement of pulpwood to 
the mill, and the flow of paper or pulp to market. 

In the first part of the study, the following questions might 
be considered: (a) What kind and amount of pulpwood is cut by 
pulp and paper companies, by contractors operating either on 
company holdings or elsewhere, and by landowners other than 
the companies? (b) From whose lands does the wood come? (c) 
Do forestry practices in pulpwood harvesting differ among the 
types of holdings, and if so, how do the differences affect the 
management and utilization of forests in the country as a whole? 
(d) What are the methods of procurement of pulpwood and the 
agencies involved? Are the methods and agencies changing? (e) 
Is the distance from stump to mill changing, and if so, why? (f) 
What effect has the depletion of pulp timber in certain areas had 
on the utilization and management of forests? (g) Are there in- 
ternational movements of pulpwood? Where does this pulpwood 
originate? Where is it used? (h) Have there been significant 
changes in the methods of transportation or the types of trans- 
portation agencies? (i) Are there regional differences in the opera- 
tion of holdings, procurement agencies, transportation, etc.? Are 
these differences reflected in differences in forest practices? (j) 
How do these differences affect forest-management operations, 
mill operations, costs, types of product produced, etc.? (k) What 
is the trend in the proportion of total wood output going into 
pulp and paper? How does this affect forest management and 
utilization? (1) Do changes in forest conditions, logging practices, 
methods of transportation, or competitive conditions between 
wood-using industries affect the proportion of total wood output 
which goes to pulp and paper mills? (m) To what extent is the 
pulpwood supply being supplemented by waste from lumber mills? 
(n) Is integration between pulp and lumber mills growing? What 
is the trend? 

In the second part of the study, the movement of pulp and 
paper from mill to market, the following questions appear perti- 
nent: (a) What is the extent and pattern of integration in the 
manufacture of paper and allied products? What tonnage of 
pulp of each type is manufactured into paper in integrated mills 
and what amount is sold to nonintegrated paper mills or to rayon 
manufacturers, etc.? In what areas does the pulp which is sold to 
nonintegrated paper mills and rayon manufacturers originate and 



MEETING OF SUPPLY AND DEMAND 345 

where is it used? What are the areas of origin and destination of 
paper produced in integrated mills? Do forest management, mar- 
keting, or ownership conditions in the areas dominated by inte- 
grated mills differ significantly from those in areas where inte- 
grated mills are of secondary importance? (b) What transportation 
agencies are employed to bring pulp and paper from mill to 
consumer? Are there significant changes in the use of transporta- 
tion agencies which might alter the location of pulp and paper 
mills? Through these effects on mill location, do the available 
transportation facilities influence the margin of use of forest lands 
for pulpwood production? (c) How important are international 
shipments of pulp and paper and what effect have these on pulp 
and paper mills in the United States? Are market structure and 
other related factors such that these effects also influence forest 
management on domestic lands from which the mills draw raw 
materials? (d) How do methods of sale and pricing policies for 
pulp and paper affect the industry? (e) What are the trends in 
consumption of paper, rayon, and other pulp products? What is the 
influence of changes in real income, technological developments, 
changes in taste, and other factors conditioning consumer choice 
on consumer demand for paper products? (f) How will trends in 
the consumption of pulp products affect the demand for pulp 
and pulpwood? 

64. METHODS AND COSTS OF MARKETING A FOREST PRODUCT 

To describe methods customarily used in marketing a forest 
product, to determine the costs of marketing under these methods, 
and to compare these costs and the probable costs of additional 
alternative methods — with a view to determining the most effi- 
cient marketing methods for a product. Method is here broadly 
conceived as including the forms in which the product changes 
hands; the agencies involved and their systems of bargaining, 
financing, and the like; the geography and means of product move- 
ment; and any other questions of the combination of productive 
agents that bear upon marketing cost. 

An example of a study under this head is to compare the costs 
of pulpwood marketing through lump-sum and per-unit stumpage 
sales to contractors and through direct pulpwood sale to the user 
(6j) — the three methods that might be customary within the 
study area — and the probable cost of marketing through a co- 
operative association operating on contract with the user (69) , 
judged to be one promising alternative. For the methods in use, 



346 RESEARCH IN THE ECONOMICS OF FORESTRY 

representative sample transactions are studied. For alternative 
methods, hypothetical models are constructed on the basis of 
partial experience. 

From the social point of view, marketing cost is the aggregate 
price spread between the beginning and end of the marketing 
chain. The intervening price structure (80) is significant for evalu- 
ation of social cost. From the private point of view, marketing 
cost is the expenses of individual firms engaged in the marketing. 
Beyond this, other aspects of cost may be considered, such as 
the long-run prospects for price structure and individual expenses, 
the living and working conditions fostered by the marketing 
method (17, 24), and the effect of the method upon forest-man- 
agement practices {48). 

65. ECONOMIC HISTORY OF A FOREST-PRODUCT MARKET AREA 

To trace and explain the economic history of a marketing and 
processing center for a forest product, and the area tributary to it. 

This research represents that segment of topic 4 that is con- 
structed around a marketing theme. Since the study concerns 
changes in title to forest products, the study area is necessarily 
one in which the tributary forest lands are or have been in various 
ownerships other than of the firms in the marketing and processing 
center. Among the questions that may be asked are the following: 
What have been the size and shape of the tributary area {66)7 
What products have been marketed, in what quantities, at what 
prices (78, 8/)? How have products been transported in the 
course of marketing (68)? What individuals and firms have oper- 
ated in the market, and what has been the history of their rise 
(and fall)? How competitive have the markets been, and what 
form has competition taken (7/, 72)? Where has the market ob- 
tained its capital (26)? What marketing methods have been tried, 
and with what success (64)? What has been the relation of 
marketing history to the history of forest-management practices 
(48)? With respect to all such questions, what explanation may 
be offered for the conditions observed, and what lessons may be 
drawn for the future? 

GEOGRAPHIC ASPECTS OF THE MARKET 

The geographic aspects of the market are of particular interest 
because the wide spatial distribution of forests, and the bulk and 
the weight-losing properties of timber make for wide distribution 
of processing establishments. Topics in the present group consider 



MEETING OF SUPPLY AND DEMAND 347 

three aspects of market geography: the area from which products 
flow into a concentration center, the area within which products 
are distributed from such a center, and the effect of the key 
factor of transportation rates upon product movement in general. 

66. TIMBER-SHEDS— William A. Duerr 

Purpose. To determine and explain the boundaries of the area 
from which a concentration center receives its supplies of a timber 
product, to determine and explain the amounts and prices of the 
product taken from the different localities within this area, to 
analyze the phenomenon of overlapping with other timber-sheds, 
and to analyze changes in these conditions. 

Scope and relation to the field. This study may be regarded 
as part of the broad problem of the location of economic activity 
(2). In the context of this broad problem, the location and other 
economic characteristics of timber-sheds are determined " simul- 
taneously" with those of concentration points and market areas 
(6f) j the various schedules of supply, demand, and transfer costs 
all interacting to produce the end result. In the present analysis, 
however, concentration points and market areas are taken as 
found, and attention is fixed on the supply area as the dependent 
variable. 

Many timber products undergo geographic concentration in 
the course of marketing. For example, among raw products, pulp- 
wood in many instances is purchased over a wide territory tribu- 
tary to the mill. Among partly processed products, lumber may 
funnel into concentration yards or other remanufacturing centers. 
Finished products are in some cases brought together at major 
wholesaling or consumption points. 

Wherever products are concentrated geographically, the study 
of timber-sheds is, along with the study of market agencies, basic 
to an understanding of price, which in turn is the central feature 
of marketing. The present research therefore bears a close relation 
not only to the price topics in this chapter, notably topic 81, but 
also to the general studies of marketing, particularly topic 6j. 

Timber-shed research may be approached from any of several 
angles. A single shed for a particular product may be studied to 
determine and explain its boundaries, its quantity and price 
structure, and its fluctuations. In the simplest case, where the 
shed is the procurement territory of an individual firm, the re- 
search is closely allied to some of that in Chapter V, as, for ex- 
ample, topic 61. In research of this sort, however, the research 



348 RESEARCH IN THE ECONOMICS OF FORESTRY 

worker soon finds himself compelled to consider related timber- 
sheds and markets in order to explain the behavior of the shed 
being studied. Thus this sort of study grades imperceptibly into a 
second sort, having to do with the interactions between adjacent 
timber-sheds. Adjacent timber-sheds for a single product or for 
two or more competing products may be selected. In the case of 
two or more products, another bordering aspect of the research is 
encountered, directed at describing and explaining the organic 
differences among the sheds of the different products. As a final 
alternative of greatest scope, research may encompass all the 
timber-sheds in an area, the emphasis being upon the role of the 
sheds in the bringing together of supplies and demands within the 
area. Such a study has a strong flavor of the broadest marketing 
topic in the present chapter (62), and even of general studies of 
the timber economy (e.g., 6). 

As an example of timber-shed research, a problem of inter- 
mediate scope will be considered in what follows: the structure 
and interactions of adjacent sheds of a single type of product. 
Pulpwood as commonly marketed in the southeastern United 
States will be taken as a case in point, each shed being the procure- 
ment territory of an individual pulp mill. Although the factors 
that determined where the pulp mills are located will not be 
considered here, a number of these factors could be evaluated as 
a by-product of this research. 

The problem may be analyzed from the point of view of the 
firm that procures its wood from the central shed, the purpose of 
the analysis being to review and improve procurement policies 
in the interests of making the procurement organization more 
efficient, obtaining wood more cheaply, obtaining the quantities 
of wood desired at any time, and the like. In this case the main 
emphasis is apt to be on the effect of the bordering timber-sheds 
upon the firm's own procurement. Alternatively, the data may be 
analyzed from the viewpoint of some other party, such as the 
public — e.g., how do procurement policies and methods affect 
regional or national income? — or the timberland owners — e.g., 
how does procurement affect owners' income? In this instance, 
the purpose is to describe and explain the whole phenomenon 
observed, as a basis for proposing procurement policies and meth- 
ods more favorable to the party in question. The main attention 
is given to the central timber-shed and its behavior, the bordering 
sheds being brought in where necessary to explain conditions in 
the central one. The latter of these two points of view will be 
considered here. 



MEETING OF SUPPLY AND DEMAND 349 

Study area. The study area, it may be supposed, is taken as 
the smallest area that will fulfill the needs of the study: the 
procurement territory of a single pulp mill or cluster of mills in 
one locality, together with one complete circle of contiguous or 
overlapping territories of other mills. The object is to encompass 
the territory of one mill and all its pulp-mill competitors in pro- 
curement. 

Data. The first type of data required is that on the dependent 
variables in the problem — quantity and price of pulpwood. It 
will be noted that quantity data, in local detail, establish the 
geographic location and the boundaries of a timber-shed. These 
quantity and price data are collected separately for each mill by 
year or some shorter period of time; by locality, such as loading 
point or county; by tree species or species group where this is 
relevant to the supply or demand problem; by method of delivery, 
such as railroad, barge, or truck; by buying agent, such as pulp- 
wood sold direct to the mill as against that sold to contractors; 
and by any other categories believed to be significant. 

The pulp companies are the best source of this information if 
the researcher is granted access to their records. If he is not, then 
he must assemble his data by processes relatively laborious and 
inefficient, making use of sampling and estimating techniques 
where possible. He obtains quantity data by county or other small 
reporting unit from published sources such as severance-tax re- 
ports and reports of the forest experiment stations of the U. S. 
Forest Service. Ordinarily the quantities of wood shipped to 
individual mills are not shown in these records and must be 
estimated on the basis of information obtained from the railroads 
and locally from contractors, public foresters, and other informed 
persons. Price data may be collected as discussed in topic 78. 

The second type of data required is that on the independent 
variables in the problem — the factors determining the price and 
quantity structure of the timber-sheds. Such data are discussed 
in topics 62 y 68, 81, and 83. Further thoughts on the type of data 
needed are suggested below. The data are obtained, for the most 
part, either from published records, as of railroad routes and 
tariffs, or through interviews with pulp company officials, timber 
owners, intermediate agents in the marketing chain, and informed 
observers. 

Analysis. The price and quantity data are tabulated and map- 
ped so that they may be visualized and reviewed most readily. 
Answers are then sought to the essential questions regarding price 



350 RESEARCH IN THE ECONOMICS OF FORESTRY 

and quantity, among which the following are given here as ex- 
amples : 

1. What is the price structure at a given time — that is, how 
are prices interrelated from point to point within the timber- 
shed, irrespective of their general level? Can the structure be 
explained entirely on the basis of transportation costs, or do 
residual differences among localities remain after these costs are 
allowed for? Why do residual differences exist? Are they related 
to the price level in neighboring or overlapping timber-sheds? 
Or are they related to competition within the shed with sawmills 
or other wood users besides pulp mills? Are they related to changes 
that have taken place in the size or in the quantity structure of 
the timber-shed — for instance, has the buyer raised prices in a 
certain locality in order to extend his purchases there? Are they 
related to the territories of individual contractors or agents for 
the pulp company; and if so, how much freedom is given to such 
agents by the company to set local prices? Are they related to 
quantities of standing timber, type of forest-land ownership, or 
other factors on the supply side of the equation? How do the price 
structures compare for the different categories of the product? 

2. What changes have occurred in the price structure that are 
not explainable by transportation cost? Do these changes follow 
a pattern or fall into systematic categories? Why have they taken 
place? In general, has there been a trend, or any consistent shorter 
movements, in the price structure either toward or away from a 
structure explainable wholly by transportation cost? How may 
such movements be explained? Are they related to the business 
cycle or to trends in the price level — for example, when the 
pulpwood market is slow, does the price structure tend to be 
explainable more fully by transportation cost alone than when the 
market is brisk? How do changes in the price structure compare 
for the different categories of the product? 

3. Irrespective of the price structure, what is the general level 
of price in the timber-shed at a given time, expressed in terms of 
the average price at the mill or in some other suitable way? How 
does it compare as between categories of the product and as be- 
tween timber-sheds? Why? Is the price level of a timber-shed 
related to its accessibility, its size, its quantity characteristics, 
or other attributes of the shed? Is the price level related to the 
degree of competitiveness of the timber-shed? This last question 
can be answered only imperfectly in a study of the present scope, 
since a complete basis for judging competitiveness is lacking for 
all but the central shed. 



MEETING OF SUPPLY AND DEMAND 35 1 

4. What changes have occurred in the general price level of the 
timber-shed, for the different categories of the product? How do 
these compare as between timber-sheds? Are changes related to 
changes in size or quantity characteristics of the shed? Are changes 
within sheds, or differences in the change as between sheds, re- 
lated to company procurement of forest land or production of 
pulpwood from this land? Are they related to changes in the system 
of buying pulpwood — for example, to increases or decreases in 
the number of layers of subcontractors through whose hands 
pulpwood passes? 

5. What changes have occurred in the boundaries of the timber- 
shed and in the quantities of the various categories of the product 
procured within them? How are these changes related to mill 
output? To forest-land procurement and management policies 
of the firm? To the firm's policies relative to the management of 
timber sellers' lands and to the perpetuation of an open market 
for wood? To quantities of standing timber and other supply 
factors? To changes in price and quantity structure of this and 
adjoining timber-sheds? To competition within the shed from 
wood users other than pulp mills? 

6. What is the quantity structure of the timber-shed and how 
has it changed over time? Is total quantity apportioned over the 
timber-shed in such a manner as to minimize the cost of that 
particular quantity of wood to the firm, or is an effort made by the 
firm to apportion it in this way? If so, what period of time is con- 
sidered in the cost-minimizing problem? What role does company- 
owned land play in the policies and plans of the firm with respect 
to minimizing the cost of wood? Where the quantity structure 
departs markedly from that which would minimize cost, how may 
this departure be explained? Is the departure related to supply 
factors, to competitive factors, to institutional factors such as 
the desire of the firm to retain at least minimum contacts with 
established procurement agents? Have there been any consistent 
movements in the quantity structure either toward or away from 
that which would minimize cost? Is the central pulp mill one 
among others owned by a single firm; and if so, does the firm 
integrate its procurement activities in such a way as to affect the 
quantity structure of the timber-shed? 

References. (1) Cassels, John M.: A study of fluid milk prices; 
xxvii, 303 pp.; Cambridge, Mass., 1937. (2) Duerr, William A.: 
The economic problems of forestry in the Appalachian region; 
xi, 317 pp.; Cambridge, Mass., 1949; Ch. VII. (3) Duerr, William 
A., J. B. Roberts, and R. O. Gustafson: Timber-products market- 



3$! RESEARCH IN THE ECONOMICS OF FORESTRY 

ing in eastern Kentucky; Ky. Agr. Exp. Sta. Bui. 488; 95 pp.; 
Lexington, 1946; pp. 63-89. 

67. DISTRIBUTION OF FOREST PRODUCTS FROM A MARKETING CENTER 

To determine and explain the boundaries of the area to which 
forest products are distributed from a marketing and processing 
center, the amounts and prices of products sold within the differ- 
ent localities of the area, and changes in these factors over time. 

This research problem is analogous to topic 66 in scope and 
method. The procedure consists in determining what amounts of 
various products were distributed to what points during a period 
or in successive periods, and the prices effective at those points. 
These phenomena are then explained in terms of sales policies 
(/j) and marketing practices (64) of the distributive agencies, 
methods and costs of transportation (68), and competition from 
other marketing centers (3). As compared with topic 66, the orien- 
tation is toward demand rather than toward supply. Being thus 
in a sense open-ended, the present topic must give closer atten- 
tion to scope. Some products will not be traced through to ulti- 
mate consumers; hardwood factory lumber, for example, may be 
traced only as far as the remanufacturers who use it as raw ma- 
terial. The principle may be followed of limiting the investigation 
to the first buyers outside the distribution center. Such restric- 
tions on scope will in general be consistent with the concept of 
scope of forest economics. 

68. MARKET GEOGRAPHY AS DETERMINED BY TRANSPORTATION RATES 

FOR A FOREST PRODUCT 

To determine the effect of transportation routes, methods, and 
costs on the geographic distribution of a forest product. 

This research isolates for special study the transportation 
aspects of topics 66 and 6/. It may be regarded also as a special 
case of topic 2a. Because of both complementary and competitive 
relationships among the different transportation methods and 
routes, all will ordinarily be considered together. Comparisons 
between products in regard to the influence of transportation 
may also be attempted. 

MARKET AGENCIES AND THEIR FUNCTIONS 

The five topics under this head focus attention upon the buyers 
and sellers and their agents who operate in the markets for forest 
products. These agencies of the market are identified; the roles 



MEETING OF SUPPLY AND DEMAND 353 

they play are investigated; and the methods they follow are 
traced. 

Topics 69 and 70 are representative of a line of research aimed 
at describing, explaining, and broadly evaluating the functions 
of specific types of market agency. The functions in question are 
those of buying, selling, assembly, storage, dispersal, financing, 
grading, and the like. From among the various agencies such as 
timber owners, local buyers, processors, wholesalers, commission 
men, retailers, and consumers, the two specific types selected for 
discussion are cooperative associations and concentration yards. 

Topics 71, 72, and 73 deal with studies of the competitive posi- 
tion and policies of classes of sellers and classes of buyers. 

69. COOPERATIVES IN FORESTRY— Frank Robotka* 

Purpose. To appraise the possibilities and limitations of co- 
operatives in the marketing of forest products, with or without 
forest management or timber processing as associated functions. 

Definitions. A cooperative association is an arrangement by 
which two or more units — in this case, producers of forest pro- 
ducts — may coordinately or jointly, rather than competitively, 
conduct for their benefit as producers, any of the processes, func- 
tions, or activities involved in the production, processing, or mar- 
keting of forest products, and share the responsibilities, risks, 
costs, and returns of conducting such activities. 

The economic role of cooperatives in forestry is to increase 
efficiency or reduce costs through horizontal and vertical integra- 
tion. For example, producers may have opportunities to increase 
efficiency, reduce costs, or improve the functioning of their mar- 
kets by cooperating if they are at a disadvantage in producing or 
marketing their products individually because of their small scale 
of production, the character of their products as economic goods, 
or defects in the functioning of their markets. 

It is accepted as given that the economic function of the market 
is to regulate production and consumption in such a manner that 
the national income will be maximized. Cooperation is one means 
of improving the economic organization and functioning of an 
industry in a free private-enterprise market economy. To the ex- 
tent that cooperative action is feasible, it should result in a better 
utilization of forest products and of the resources used in pro- 
ducing and marketing them. 

*The author acknowledges helpful suggestions received from Kenneth E. Bar- 
raclough, University of New Hampshire. 



354 RESEARCH IN THE ECONOMICS OF FORESTRY 

Approaches to the problem. The question of the possibilities 
and limitations of cooperatives in forestry may be approached in 
two ways. One approach is from the industry-wide point of view. 
A program of research thus organized should reveal the possi- 
bilities of cooperatives in general, in the industry as a whole. The 
second approach is specific, for a particular region, state, or other 
localized area. Each of these approaches contributes to and sup- 
plements the other. Combining them contributes most to the 
solution of practical problems in forestry. 

These are some of the questions to be considered in an industry- 
wide approach: (a) What, in general, are the possible economies 
of horizontal and vertical integration through cooperation in 
forestry? (b) What, in general, are the possibilities, through co- 
operatives, of achieving more nearly optimum-scale operations in 
production, processing, and marketing under the competitive con- 
ditions in forestry? (c) What is the nature and magnitude of risks 
and uncertainties involved in producing and marketing forest 
products, and what are the possibilities of reducing or spreading 
them through producer cooperatives? (d) What is the relative 
efficacy, from the general-welfare point of view, of achieving 
economies of scale and integration through producer coopera- 
tives, where participating units retain their individual identities 
and control is decentralized, as compared to large-scale, corporate 
consolidations and mergers, where control is centralized? (e) What 
are the possibilities of increasing returns to producers through qual- 
ity improvement and grading of timber products by producers 
through cooperatives? (f) What is the nature of competition and the 
pricing process in forestry, and what are the possibilities of im- 
provement through producers' cooperatives? (g) How do the laws 
and court decisions relating to timber management, monopoly and 
trade practices, incorporation, and taxes affect the possibilities and 
limitations of cooperatives in forestry? (h) What is the history of 
cooperatives and their present status in forestry? This should be a 
historical-economic interpretation of factors leading to coopera- 
tive development, the problems cooperatives have sought to solve, 
and their plans of organization, methods of operation, and serv- 
ices rendered, (i) What are the possibilities of cooperatives in 
improving forest management? 

In the area approach, it is recognized that the basic principles 
of cooperatives are the same regardless of the field in which the 
cooperatives operate. The manner in which these principles are 
applied, however, varies with the circumstances. In this approach, 



MEETING OF SUPPLY AND DEMAND 355 

the problem is to discover what the circumstances are in a particu- 
lar area and, on the basis of the information thus obtained, to 
appraise the potential economic role of cooperatives in the area 
and the probable adaptations that may need to be made in order 
to maximize the chances of success in playing that role. 

The following are among the questions to be investigated in an 
area approach: (a) The existence of urgent needs and potential 
opportunities to increase efficiency in timber production, process- 
ing, and marketing, (b) An adequate legal basis for cooperative 
business associations, (c) The applicability of cooperative ap- 
proach to the problems that give rise to needs or opportunities 
for increased efficiency, (d) The ability and willingness of the 
people concerned to assume the responsibilities that cooperation 
entails — providing adequate capital, assuring the cooperative of 
a volume of business necessary for efficient operation, sharing 
costs and risks, delegating the necessary authority to the associa- 
tion and abiding by the majority-rule principle, and participating 
actively in the affairs of the association, which includes providing 
competent management and leadership. 

In what follows, research on cooperatives in forestry will be 
discussed from the standpoint of the area approach. It is as- 
sumed, however, that this approach will be backed by material, 
and special studies as needed, on industry-wide principles. 

Some obstacles to cooperation. It should be recognized at the 
outset that many obstacles must ordinarily be overcome in any 
area in order to achieve success in cooperation. Some of them arise 
because of human traits and frailties; some are inherent in the 
nature of the cooperative form of business organization; and many 
are primarily operational, the solution of which is a matter of 
business judgment rather than economics research. In any case, 
these obstacles must be borne in mind by the research worker, 
and allowance made for them in the analysis of opportunities for 
cooperation. 

Among the most frequent causes of cooperative failure are lack 
of an adequate volume of business, insufficiency of capital, and 
mismanagement. These problems frequently arise where it is diffi- 
cult to maintain the active interest of members, which is likely 
to be the case where they are widely scattered and their business 
contacts with the organization are infrequent. If a given product 
provides a small part of the producers' income, the producers 
are not likely to be willing to change their methods or assume the 
risks and responsibilities which successful cooperation entails. 



356 RESEARCH IN THE ECONOMICS OF FORESTRY 

Most rural producers as well as other buinessmen are habituated 
to functioning individually in competition with one another. When 
a group of producers undertakes joint action regarding marketing 
or any other activity, by implication they cease to function com- 
petitively among themselves with respect to that activity. They 
continue to compete with other producers, but they do so as a 
group, not as individuals. Moreover, success in cooperation entails 
the surrender of a certain amount of individual sovereignty, and 
the equitable sharing of responsibilities by the members. If the 
people concerned have had no previous experience as cooperators, 
they will have many things to learn and many adjustments to 
make in their thinking and actions. This process takes time and 
involves persistent and well-directed educational work preceding 
and subsequent to setting up the organization. 

Procedure. This topic differs from most others in this book in 
that it deals with a particular method of business organization as 
a means of solving a variety of problems. In this respect it is 
somewhat similar in orientation to several other topics (e.g., 
16, 28, 56, 70), but most of the topics in this book are problem- 
oriented rather than program-oriented. 

Problem-oriented topics (e.g., /, <5, 72, 25, 41, 62, 64, 71, 83) 
provide guides to procedures applicable in the present study. 
These procedures can usually be applied directly in obtaining 
data to be interpreted in terms of the present orientation. Basic 
information can also be obtained from the general literature on 
forestry and the historical and descriptive literature on coopera- 
tives in forestry and agriculture (see references). 

Specific information regarding the existence of needs or op- 
portunities to increase efficiency in timber production, processing, 
and marketing (item a above, under the area approach) may be 
obtained by an economic survey in the area under study. Such 
a survey should yield qualitative, if not quantitative, informa- 
tion regarding the nature of competition in the markets and its 
probable relation to prices; the scale of operations in produc- 
tion and marketing and its probable relation to costs; the 
availability of needed harvesting, processing, and marketing fa- 
cilities and services; and related considerations. Comparative 
data regarding prices in the study area and other areas will be 
useful. 

Information regarding the legal basis for cooperatives in the 
area (item b) may be obtained from federal and state statutes 
and from court decisions. Interviews with well-informed lawyers 
will be helpful. 



MEETING OF SUPPLY AND DEMAND 357 

Conclusions regarding the applicability of the cooperative ap- 
proach to the needs or opportunities for increased efficiency in 
timber production, processing, and marketing (item c) will be 
based largely upon the nature of the problems revealed by the 
economic survey of the existence of needs or opportunities to 
increase efficiency. Also to be evaluated are the ability and will- 
ingness of people to cooperate, and information supplied by case 
studies of cooperatives in the area and the history and experience 
of forestry and other types of cooperatives elsewhere. It is in this 
phase of the work that results of industry-wide studies will be 
most useful. 

Information regarding the ability and willingness of the people 
to cooperate (item d) will be supplied partly by the data gathered 
under the economic survey described above, supplemented by 
case studies of forestry and other cooperatives. Thus the industry- 
wide approach will be a valuable supplement to this step also. 
The information gathered should throw light on the probable 
amount of capital and volume of business essential for successful 
cooperation, and the nature and magnitude of risks and uncer- 
tainties. A survey should be made to reveal the amount of capital, 
volume of business, managerial ability, leadership, and other 
essentials available in the area. An important consideration, how- 
ever, is not only the ability, but the willingness of the people 
concerned to allocate their resources to cooperatives and to as- 
sume the consequent risks and responsibilities. This is largely a 
matter of attitudes and other sociological factors. Information 
may be obtained by a survey of a representative sample of po- 
tential cooperators. Many factors influence the attitude of people 
toward cooperation, such as their economic, social, and educa- 
tional status; their ideals and prejudices; their aspirations and 
frustrations; their knowledge about cooperatives; and their ex- 
perience with particular cooperatives. The experience of coopera- 
tives as revealed by the case studies should be drawn upon to 
the extent that they may provide practical tests of the willingness 
of people to cooperate. Such experience, however, may be of 
little value unless specific reasons for willingness or unwillingness 
to cooperate are ascertained. For related material, reference is 
made to Sociology of forestry in Chapter II. 

The important relationships between the member and his co- 
operative have to do primarily with providing capital and patron- 
age, assuming responsibility for costs and risks, participating in 
control and management, and sharing sales or operating proceeds. 
To work out these relationships involves adapting the cooperative 



358 RESEARCH IN THE ECONOMICS OF FORESTRY 

organization to the circumstances and attitudes of the people. 
For example, members may contribute capital by buying shares 
of stock, lending funds to the cooperative, consenting to deduc- 
tions from sales proceeds, consenting to the retention of patronage 
refunds by the cooperative, etc. Members may pledge their patron- 
age, or the association may depend upon voluntary patronage. 
Business may be done only with member patrons, or with both 
members and nonmembers. Members may assume responsibility 
for costs and risks by consenting to having costs and reserves 
deducted before proceeds are distributed, or patrons may insist 
on being paid "according to the market" on each delivery of 
products. Losses may be "spread" by means of reserves, assessed 
against patrons, or borne by stockholders. Sales proceeds and 
expenses may be pooled for long or short periods of time, by 
individual products or by groups of products, etc. Although co- 
operative laws usually provide for voting on the one-man-one-vote 
principle, the ways in which members actually participate in con- 
trol depends to some extent upon the division of decision-making 
power among members, directors, and managers. These are merely 
illustrations of the many ways in which adaptations in each case 
need to be made to the attendant circumstances. Some of these 
adaptations represent undesirable deviations from the principles 
of true cooperation. 

Another aspect of adaptation is the possibility of forest prod- 
ucts being handled by cooperatives marketing farm products. 
Case studies should be made if there are possibilities in this direc- 
tion. One factor to consider is the complementary, supplementary, 
and competitive aspects of forest products in relation to the others. 
Other considerations are the effect that adding forest products 
may have on the homogeneity of interests of members, and the 
problems that may arise in allocating or sharing costs, losses, and 
risks. The proceeds from sales of forest products would probably 
have to be accounted for separately, rather than pooled with the 
others. 

References, (i) Abrahamsen, Martin A., and Claud L. Scroggs: 
What North Carolina people think about agricultural coopera- 
tives; N. C. Agr. Exp. Sta. Information Series 16; 38 pp., mimeo- 
graphed; Raleigh, 1948. (2) Bakken, Henry H., and Marvin A. 
Schaars: The economics of cooperative marketing; vii, 583 pp.; 
New York, 1937. (3) Black, John D.: Guideposts in the develop- 
ment of a marketing program; Jour. Farm Economics 29, 3, 
pp. 616-631; 1947. (4) Cunningham, Russell N.: Forest coopera- 






MEETING OF SUPPLY AND DEMAND 359 

tives in the United States; U. S. Forest Service, Report 6 from 
"A reappraisal of the forest situation," ii, 18 pp., processed; 
Washington, 1947. (5) Hulbert, L. C: Legal phases of coopera- 
tive associations; Farm Credit Administration Bui. 50; vi, 456 
pp.; Washington, 1942. (6) John, M. E.: Factors influencing 
farmers' attitudes toward a cooperative marketing organization; 
Pa. Agr. Exp. Sta. Bui. 457; 34 pp.; State College, 1943. (7) 
Nicholls, William Hord: Theoretical analysis of imperfect com- 
petition with special application to the agricultural industries; 
xiv, 384 pp.; Ames, Iowa, 1941. (8) Nourse, Edwin G.: The legal 
status of agricultural co-operation; xix, $$$ pp.; New York, 1927. 
(9) Quintus, Paul E., and Frank Robotka: Butterfat procurement 
by creameries in Butler County, Iowa; la. Agr. Exp. Sta. Re- 
search Bui. 265, pp. 254-302; Ames, 1939. (10) Social Science 
Research Council: Research in marketing of farm products; Social 
Science Research Council Bui. 7; 221 pp.; New York, 1932. (11) 
Social Science Research Council: Research in agricultural co- 
operation; Social Science Research Council Bui. 15; 180 pp.; 
New York, 1933. 

70. ROLE OF THE CONCENTRATION YARD !N LUMBER MARKETING— 
A. E. Wackerman 

The purpose of this research is to evaluate the functions of 
concentration yards in the buying and selling of lumber. 

A lumber concentration yard is a plant, usually located at a 
convenient shipping point, at which rough green lumber sawn 
at small mills is assembled for seasoning, finishing, grading, stor- 
age, and distribution. The mills supplying the yard may be owned 
by the yard, or independently, or there may be various inter- 
mediate financial relationships between them and the yard. A 
yard may finance both the purchase of stumpage and its initial 
processing and transportation. Concentration yards are particu- 
larly important in the marketing of pine lumber in the south- 
eastern United States, where small mills have supplanted large 
ones to a considerable degree. Some large sawmills operate also 
as concentration yards. 

The ultimate objective of studies in this field is to learn what 
improvements are possible in the marketing system, so far as 
concentration yards are concerned, that would result in higher 
prices for standing timber or lower prices — or better quality — of 
lumber for consumers, or both. Toward reaching this ultimate 
objective, two groups of research questions are pertinent. First, 



360 RESEARCH IN THE ECONOMICS OF FORESTRY 

there are questions relating primarily to the description of the 
concentration-yard system: its geographic extent, the number and 
location of firms involved (54), their operating territories (66, 67), 
the kinds of lumber handled, functions performed, buying and 
selling methods, types of business and financial relationships be- 
tween yards and their suppliers, and so on. Second, there are 
questions pointed more specifically at possible defects and op- 
portunities for improvement in the system, involving the effects 
of the system on such things as the price of stumpage, logs, small- 
mill lumber, and finished lumber; the quality of small-mill lumber 
and of finished lumber sold by the yard; the stability of produc- 
tion; the management of forest lands; the returns to labor and 
enterprise in the industry; and the rate of technological advance- 
ment. These questions all relate to the functioning of the system 
in general rather than to the operation of specific yards; never- 
theless, they encompass the economics of individual yard enter- 
prises — their volumes, costs, and returns, and their comparison 
with alternative functionaries. A few of these questions will be 
given special attention below. 

Since concentration yards are the primary purchasing points 
for the most important product of forests over a wide area, their 
role in timber-price formation (83) is of major concern to forest 
owners. This role consists of buying and selling procedures as 
well as financial arrangements and other operating procedures. 
Concentration yards are of particular importance to small forest 
owners such as farmers, since most of the yards depend on ob- 
taining their lumber needs from small mills that cut small tracts 
of timber. What is the effect of the yards upon the incentives and 
the practice of forest management on these small tracts? 

Another study of concentration yards may deal with the degree 
of competition between them for rough green lumber in a par- 
ticular area. Also, as many yards own or finance small mills, 
their competition for timber and its effect on prices may be 
studied (Sja). 

Other studies may be directed toward finding ways for con- 
centration yards to handle hardwood lumber. Most yards deal 
only in softwood lumber, affording no adequate market for hard- 
woods. As a result, the value of hardwood timber on small tracts 
is lower than it might otherwise be. Inquiry into the reasons why 
concentration yards prefer to deal in softwood lumber, and into 
the possibility of developing hardwood lumber dealing by con- 



MEETING OF SUPPLY AND DEMAND 361 

centration yards, might lead to additional markets, higher prices, 
and more merchantable timber volume in small properties. 

Studies of the number of years concentration yards have been 
in business, and of the factors bearing on their stability, should 
yield constructive results. Many yards are operated as though 
they were temporary enterprises, although actually they are fairly 
permanent. If it can be shown from past experience and an analy- 
sis of the outlook that yards have the opporutnity for stability, 
they might be encouraged to operate as though they were perma- 
nent businesses, with resulting favorable effects on timber and 
lumber marketing. 

Other studies may deal with the relationship between purchase 
prices for rough green lumber and the prices for finished lumber 
(64); determinants of margins and effects of changes in margin 
upon volume handled, supply areas, and other aspects of enter- 
prise activity; and relationships between stumpage and rough 
lumber prices (So). 

Data for studies of concentration yards should be obtained by 
personal interview with officials of the companies. It is doubtful 
that much reliable information can be obtained from mailed 
questionnaires. Investigators with knowledge of lumber manu- 
facturing and marketing are much more successful in obtaining 
complete and accurate data than inexperienced men. The assist- 
ance of lumber trade associations can be solicited. Data on ship- 
ments may be obtained from the railroads and other carriers as 
well as from the yards. 

Reference. Duerr, William A.: The economic problems of for- 
estry in the Appalachian region; xi, 317 pp.; Cambridge, Mass., 
1949; pp. 244-252. 

71. BARGAINING POSITION OF SELLERS OF FOREST PRODUCTS— 
Lee R. Martin 

Purpose. To determine imperfections on the sellers' side of a 
forest-product market, with a view to discovering possibilities for 
improvement. 

Definitions and basic considerations. J. M. Clark (reference No. 
7, p. 455) gives, as "a generic definition of competition in price 
between business units in their capacity as sellers," the following: 
" Competition is rivalry in selling goods, in which each selling 
unit normally seeks maximum net revenue, under conditions such 
that the price or prices each seller can charge are effectively 



362 RESEARCH IN THE ECONOMICS OF FORESTRY 

limited by the free option of the buyer to buy from a rival seller 
or sellers of what we think of as 'the same' product, necessitating 
an effort by each seller to equal or exceed the attractiveness of 
the others' offerings to a sufficient number of buyers to accom- 
plish the end in view." 

If "sell" is substituted for "buy" and vice versa, the result is 
one definition of "workable competition" for the type of market 
with which this topic is concerned. Deviations from this norm 
will be considered market "imperfections." Clark (pp. 456-457) 
gives a list of ten conditioning factors that affect the nature of 
competition in the particular market. 

Because the concern here is with imperfections affecting sel- 
lers' bargaining position, and because other imperfections in the 
process of bringing products from the forest to the consumer can 
best be dealt with elsewhere in this book, this statement will be 
limited to a consideration of the effects of (a) the character of 
market information among sellers, and (b) inequalities in bar- 
gaining power between buyer and seller, particularly weakness 
on the part of the seller. 

Imperfect knowledge on the seller's side may be with regard to 

(a) the amounts of the different qualities of timber for sale, (b) 
the alternative uses that might be made of the timber, (c) the 
prices applicable to the different qualities and uses. 

Unequal bargaining power may exist at any stage of the proc- 
ess where title to forest products changes hands. It is not neces- 
sarily dependent upon imperfect knowledge. Disparity in bar- 
gaining power may also arise where (a) the buyer is large and 
financially strong, and his position well established, (b) the seller 
is weak because of the size of his operations or because of con- 
tinual pressure to enhance his inadequate income in any way 
possible, or (c) both conditions exist simultaneously. 

One factor that appears to be closely related to the bargaining 
position of sellers, particularly forest-land owners, is the tenure 
characteristics of the forest land in the area. One approach which 
appears promising is to delineate class-of-tenure areas (/) and 
study these areas separately. There are substantial differences 
among the classes of tenure not only in the degree to which the 
problem exists, but also in its importance and in the remedies 
which seem feasible. For present purposes, a likely classification 
of areas might be based on the predominance of (a) farm forests, 

(b) forests held by other private enterprises not engaged in any 
processing operations, (c) forests held by other private enterprises 
engaged in processing operations, or (d) public forests. 



MEETING OF SUPPLY AND DEMAND 363 

The sellers with whom the following discussion will deal are 
(a) owners who sell stumpage, logs, or other slightly processed 
forest products, (b) operators who buy stumpage and sell logs 
or other slightly processed forest products, and (c) operators who 
buy logs and sell logs or other slightly processed forest products. 

Variations in the amount of knowledge present among sellers 
and in the balance of bargaining power between buyer and seller 
are related to the type of product. The following classification of 
forest products devised for the Appalachian region by Duerr 
(cited, pp. 176-177) is based primarily on differences in organiza- 
tion and practices in marketing: (a) pulpwood group: pulpwood, 
extract wood and bark, chemical wood, and mine timbers; (b) 
sawmill products; (c) yard products: ties, poles, and piles; (d) 
veneer group: veneer logs, insulator-pin bolts, shuttle bolts and 
allied products, handle-stock material, and bolts for wooden nov- 
elties; (e) cooperage group: cooperage bolts and shingle and ex- 
celsior bolts; (f) local products: fuelwood, tobacco wood, charcoal 
wood, posts, shake bolts, paling wood, unsawed tobacco sticks, 
and poles and stakes for farm crops; and (g) minor products: 
hewn timbers, pipe burls, maple-sap products, Christmas trees, 
wreaths, boughs, mistletoe, and decorative plants. It is important 
that such differences be borne in mind. Complications arise out 
of such a classification because some trees or logs — or even all 
the trees cut off a given tract — may be suited for several of these 
uses. Thus it becomes clear that optimum market knowledge 
includes the possible uses of the timber as well as its quality, 
quantity, and appropriate prices. 

Relation to the field. This study will rely heavily on others in 
Chapter VI for descriptive and other background information, 
and will at the same time contribute materially to these studies. 
It will use background material from such topics as 62 and 64. 
It will in turn provide needed information for topics 69, 8ja, and 
83b. For example, the findings will provide an indication of the 
need for forest cooperatives or for other kinds of marketing or- 
ganizations different from those now found. Again, they will 
give a measure of the relationship between forest products prices 
at different stages and the existence of disparities of bargaining 
power at any stage. Still again, the results will indicate the extent 
to which bargaining-power inequities furnish the basis for monop- 
olistic prices — and returns — in certain channels of distribution. 

Beyond the present chapter, the topic is related to several 
concerned with forest production. The findings of the study will 
underlie the analyses of topic 55 in showing the degree to which 



364 RESEARCH IN THE ECONOMICS OF FORESTRY 

market imperfections of the sort here considered influence pro- 
duction responses to price change. At the same time, the study 
will draw heavily upon the results of topics 26, 43, and 57c in 
appraising the effects of the market imperfections with which 
it is concerned. One effect might be measured by comparing the 
actual utilization of trees in farm forests with what is found to 
be optimum utilization. The contributions of the forest credit 
situation to competitive conditions in the different markets, and 
of the sellers' bargaining position to the use of, and need for, 
forest credit will require appraisal. Information on forest taxa- 
tion and management will permit analysis of the interrelationships 
among taxation, management, and competitive conditions. 

Finally, this project has direct significance for a number of 
studies which consider the forest economy as a whole. Its findings 
will be relevant to the analyses in topics 8, 22, and 29. It is almost 
certain that inadequate market knowledge and disparities in bar- 
gaining power play a role in the deviation of these different per- 
formance aspects of the forest economy from an optimum. 

Data required, compilation, and analysis. It is obvious that the 
investigation implied in the statement to this point would tax 
the resources of a single research project. To cut it down to size, 
an example may be taken in which the investigation will be limited 
to market information and bargaining power of sellers in a forest 
area with farm forests predominant, and consideration given only 
to sales of saw- timber stumpage by forest-land owners. Thus 
limited, the study divides easily into two phases: determination of 
the degree to which the problem exists, and analysis of measures 
designed to correct the problem. 

No simple procedure for determining the extent of the problem 
suggests itself. Because the existence of imperfections in the mar- 
keting process presumably leads to results not in the interests of 
society, one qualitative and crude measure is an approximation 
of the deviations of market results from the optima. Generally, 
such imperfections might produce the following consequences: 

1. Excessive returns to some of the firms performing market 
functions. This phenomenon may involve low prices for the com- 
modity purchased. 

2. Proliferation of market agencies — or of functions or resources 
used by the " optimum" number of agencies. This need not in- 
volve excessive returns to any firm, but the sum of "normal" 
returns to each of too many agencies would constitute excessive 
payment for the performance of the market function. 



MEETING OF SUPPLY AND DEMAND 365 

3. Indefinite persistence of inefficiencies in the performance of 
marketing functions or in the uses made of the products. This 
condition may exist with or without the two others stated above. 

Even if a universally acceptable criterion for " excessive returns" 
were available, it would soon be found that the data to which the 
criterion would be applied can seldom be obtained. Possibilities 
for useful data include accounting statements made public by 
incorporated firms, and income information from the Bureau of 
Internal Revenue. Extreme care will have to be exercised in 
analyzing such data, but comparisons of them with similar data 
for other industries whose characteristics are known should 
provide at least a presumption that certain factor incomes 
were or were not " excessive." In addition, price data, if accom- 
panied by accurate descriptions of the products to which they 
apply, may be highly useful (78). 

There is more hope of measuring the proliferation of agencies, 
functions, and resources, and the persistence of inefficiencies. 
By using an area large enough to permit realization of economies 
of scale inherent in the marketing or form-changing operations, 
the researcher can construct an economic model for getting these 
necessary operations performed in the most efficient manner. 
One of the most difficult decisions will be the choice between 
enough independent firms to insure some competition and large 
enough firms to realize all the economies of scale. Estimates of 
the sort needed may be obtained by having cost studies for all 
the operations made by engineering firms, or by making approxi- 
mations based on such data as that published by Duerr, Roberts, 
and Gustafson (see references). 

By comparing the model with the actual situation in the area 
being studied, the investigator can get some idea of the rationality 
of marketing in the area, and even of the money cost of the de- 
viations from the optima. However, the static nature and limited 
applicability of this approach ought to be stressed. The approach 
is valid only when all conditions except those in the area remain 
the same; should every area similar to the one under study react 
in the same way, then other, much more complex calculations 
would be necessary. Complete validity is achieved only when 
the ratio of the area market to the whole market is infinitesimal. 

To get a crude estimate of the cost of the imperfections affecting 
a given transaction that has actually taken place, the researcher 
can take the quantity and quality of timber involved and com- 
pute the costs of moving it through the model. Subtracting these — 



366 RESEARCH IN THE ECONOMICS OF FORESTRY 

and transporation — costs from the central market price would 
give a price with which to compare the price registered in the 
actual transaction. The model would also give some indication 
of the resources actually allocated to this segment of the forest 
industry in comparison with the quantity necessary, under the 
assumptions made, to do the job most economically. 

Although there is at present no means by which to measure 
the ratio — or inequality — of bargaining power, it is possible to 
obtain some indication of the knowledge present among sellers. 
Direct questionnaires may be used to obtain information from 
owners who have sold their timber in the recent past, and from 
owners who are about to sell some of their trees for sawlogs. 
Questions will be asked to bring out as nearly as possible the 
basis for sellers' decisions — such as when to sell, how to sell, to 
whom to sell, the means for arriving at the quantity, and determi- 
nation of unit price. Accurate data on the product and the price 
will be obtained if possible. Specific information should be elicited 
on the content and mechanics of the sales contracts (written or 
oral), the extent to which the buyer complied with the contract, 
and the degree of seller understanding of the contractual impli- 
cations. Useful, too, will be the answers to questions designed to 
bring out how many prospective buyers the seller thought there 
were for his product, and with how many he made contact or 
attempted to make contact for bids. The form of the bids and the 
seller's understanding of the different bids merit investigation. 
The situation as sellers believe it to be can be compared with 
what other studies show it to be. As far as possible, the areas 
sampled in these interviews should be selected to present con- 
trasts in the amount of market information possessed by or 
available to sellers. One possibilitv would be to take two areas 
as nearly alike as possible, with one area served by public consult- 
ing foresters and the other not. If it can be assumed that the 
bargaining-power situations are reasonably similar, then differ- 
ences in market information may be associated with differences 
in market results, and some indication obtained concerning the 
part that lack of market information has upon market results. 

Having demonstrated the existence and something of the mag- 
nitude of the problem, efforts must now be directed to determining 
the changes which will have to be brought about to move the 
marketing structure in the direction of the optimum. There are 
few if any guideposts to help choose the right direction for in- 
stitutional changes. 



MEETING OF SUPPLY AND DEMAND 367 

By this time the investigator should have tentative answers 
to the following questions: When there is already inequality of 
bargaining power in a market, does the lack of market knowledge 
on the part of the seller consistently and substantially affect the 
terms of the bargain? Would a substantial enhancement of market 
knowledge go far toward restoring parity in bargaining power? 
If the answers to these questions are yes, the problem becomes 
simply that of obtaining and distributing market information 
in the most economical manner. 

If market knowledge would not in itself restore the amount of 
parity required, would it contribute enough to justify seeking the 
most effective mechanism for simultaneously balancing bargaining 
power and increasing market knowledge? If so, the goal is reason- 
ably clear even if the path to it is not. 

If the inequality of bargaining power is of primary or exclusive 
importance, the researcher must next seek out the bases upon 
which this imperfection rests. Some information relative to this 
problem should have turned up in the questioning of sellers. In 
the questionnaire, particular questions should be asked about 
the roles played in the seller's disadvantageous position by his 
income level, his access to credit, and his tax liabilities. 

If the research indicates that the disparity in bargaining power 
is not largely accounted for by the seller's inadequate market 
knowledge, tax and credit situation, or income position, then 
still other correctives must be sought. Because cooperatives pro- 
vide a mechanism for integration of marketing with other activi- 
ties of many small producers, and because they can also be or- 
ganized to provide assistance in forest management or in credit 
or tax problems, this institution appears to offer unusual promise 
as a possible solution. Further investigation would provide more 
information on whether this promise would be as likely to materi- 
alize as now appears. Research designed to discover other means 
of sale than those now prevalent ought to be worth while, par- 
ticularly after the investigator has studied the mechanics by 
which bargains are made. 

References, (i) Chamberlin, Edward H.: The theory of mono- 
polistic competition; xiv, 282 pp.; Cambridge, Mass., 5th ed., 
1946; Chs. I, II, VIII. (2) Duerr, William A.: The economic 
problems of forestry in the Appalachian region; xi, 317 pp.; 
Cambridge, Mass., 1949; Chs. V-IX. (3) Duerr, William A., 
John B. Roberts, and R. O. Gustafson: Timber-products market- 
ing in eastern Kentucky; Ky. Agr. Exp. Sta. Bui. 488; 95 pp.; 



368 RESEARCH IN THE ECONOMICS OF FORESTRY 

Lexington, 1946. (4) Nicholls, William Hord: Theoretical analy- 
sis of imperfect competition with special application to the agri- 
cultural industries; xiv, 384 pp.; Ames, Iowa, 1941; Chs. 4-9, 
12-17, 19-20, and Conclusion. (5) Schultz, Theodore W.: Agri- 
culture in an unstable economy; xix, 299 pp.; New York and 
London, 1945; Ch. IV. (6) Social Science Research Council: Re- 
search in marketing of farm products; Social Science Research 
Council Bui. 7; 221 pp.; New York, 1932; pp. 3-12, 77-94. (7) 
Hoover, Edgar M., Jr., and Joel Dean, compilers: Readings in 
the social control of industry; viii, 494 pp.; Philadelphia, 1942; 
pp. 1-47, 263-279, 418-475. 

72. BARGAINING POSITION OF BUYERS OF FOREST PRODUCTS 

To determine imperfections on the buyers' side of a forest- 
product market, with a view to discovering possibilities for im- 
provement. 

This study, the counterpart of that described in topic 77, 
concerns buyers' knowledge of forest products and their mar- 
kets, the degree of competition among buyers, the controls ex- 
erted by buyers over the marketing process, and other factors 
affecting buyers' bargaining position, and the effect of these con- 
ditions on the operation of the market. Three sorts of situations 
may be investigated. The first is where buyers' bargaining posi- 
tion tends in many respects to be advantageous, as where rail- 
roads buy cross ties from individual small producers. The second 
is where buyers' bargaining position tends in many respects to 
be disadvantageous, as where ultimate consumers buy construc- 
tion lumber in retail markets. The third is the mixed situation, as 
where small, poorly financed local operators with imperfect knowl- 
edge of standing timber buy stumpage from owners of small 
forest tracts. 

73. SALES POLICY AND PROGRAMS OF FOREST-PRODUCTS FIRMS— 

Neil T. Houston 

Purpose. To determine the factors affecting the amount, timing, 
terms, and channeling of sales in an industry; and to determine 
the significance of such factors as determinants of sales or price 
policy in business firms. A broader purpose of this project is to 
aid in understanding the operation of individual firms in order 
that the functioning of a forest-products market may be grasped 
more fully. 

Relation to the field. Two stages or types of analysis are im- 



MEETING OF SUPPLY AND DEMAND 369 

plied in this project. The first is the study of an industry to de- 
termine those basic influences which will explain the events ob- 
served in that industry. If this includes explanations of sales 
volume, seasonal and cyclical fluctuations, channels of distribu- 
tion used, and terms of sale such as discounts, delivery periods, 
and payment of transportation costs, the magnitude of the study 
is great indeed. It includes the subject matter of many other 
topics, such as topics 91-93 and 93 on demand, 62-70 and 75 on 
marketing methods and channels,// and 72 on competitive condi- 
tions, and 83 on price movements. In the present project, how- 
ever, the industry-level analysis consists largely of a synthesis 
of results of these other studies. 

The second stage or type of analysis, which is the main purpose 
here, is to study policy decisions in individual firms, and to com- 
pare the bases of such decisions with the determinants of industry 
conditions. Most of the research in this project hence is to learn 
how business firms make decisions — to what conditions they re- 
act and for what reasons. The difference between this type of 
analysis and the industry studies mentioned above is shown in a 
simple example. One of the major factors influencing sales in 
the lumber industry is the volume of new building construction, 
while the sales of an individual mill or lumber yard may be found 
to depend on its location, the quality of its products as com- 
pared to that of other firms, services offered to customers, ad- 
vertising, skill of salesmen, etc. It is these latter factors that 
determine the division of the total industry sales among the 
separate firms, and as such they are of vital importance to the 
firms. But the collective action of all firms in advertising, for 
instance, may have no effect at all on the total industry sales. 
Such a result would be expected in those wood products for which 
there are no close substitutes — 1 x 4's, for example. A quite 
different result might well be found in those wood products, such 
as roofing and sash, for which wood substitutes are available. 
The substitute materials are usually branded and advertised 
The combined effect of product differentiation and advertising 
by the wood-products producers could well result in an increase 
in total sales of their industry at the expense of substitute ma- 
terials. The point made here, however, is that the individual firm 
will advertise if it believes a sufficient increase in sales will follow, 
whether it comes from within or without the industry. The study 
of product differentiation envisioned in topic 76, below, would 
provide valuable information on this question. 



370 RESEARCH IN THE ECONOMICS OF FORESTRY 

Selling programs are but one part of the firm's efforts to utilize 
factors of production for maximum profit. For example, an analy- 
sis which closely parallels the present one, except that it con- 
cerns production policies, appears as topic 61. However, selling 
operations have not been subjected to such intensive study from 
this point of view as have the processes of physical fabrication. 
The theoretical significance of selling efforts in an imperfectly 
competitive economy has been appreciated only recently, and 
the testing of theoretical principles has been delayed by the 
difficulty of measuring the effects of changes in selling activities. 
An additional purpose of this project could thus be the study of a 
business enterprise to determine the extent to which its marketing 
program can be explained by the economic theory of the firm. 

From the point of view of the firm, the importance of sales 
policies and programs is obvious, for they contribute largely to 
the profit and competitive strength of the business. That an 
understanding of the firm can contribute to an understanding of 
the industry has been pointed out above. In addition, any attempt 
to guide or control the functioning of an industry, as in a period of 
national emergency, must operate through the individual business 
firms. Hence it involves the creation of circumstances, whether 
they be legal prohibitions or economic incentives, to which the 
firms will adapt their operations. This process of adaptation 
must be such that the desired pattern of behavior in the industry 
is produced. Therefore, knowledge of the ways in which firms find 
it profitable to adapt their marketing programs in various situa- 
tions becomes essential to effective control. 

Definitions. Marketing policies are predetermined courses of 
action to be followed under given conditions. They are general 
rules to be observed in the firm over fairly long periods and are 
for the guidance of management in reaching decisions on many 
specific cases. For example, a mill may have a policy of selling 
only to wholesalers. Its salesmen therefore know that they are 
not to solicit retailer customers or industrial users, and orders 
received at the mill from such customers are not filled but are 
referred to the appropriate wholesaler. 

The marketing program of the firm consists of those activities 
which will conform to the established policies, and which are 
necessary to accomplish the sale and physical distribution of the 
product. It includes also research, planning, and evaluation of 
the effectiveness of the activities undertaken. 



MEETING OF SUPPLY AND DEMAND 371 

The development of sales policies and programs is the task 
usually known in marketing literature as sales management. 

The objective of the sales manager is usually to make profits for 
the firm. It should be realized, however, that maximum profit 
may not be the dominant objective in the short run. A manufac- 
turer or wholesaler may sacrifice immediate profits to enlarge 
his share of the market or strengthen his position with existing 
customers. A firm operating forest land may forego immediate 
profits to put its timber stands on a sustained-yield basis. It 
may simply limit its cutting, or it may go to some lengths to 
diversify its output — add pulp, wood chemicals, etc. — in order 
to utilize a greater range of sizes and varieties of timber. If such 
policies put the firm's timber resources on a sustained-yield basis, 
they may be adopted even though market analysis indicates 
that they will not yield an immediate profit. A large firm in 
which ownership is widely dispersed is generally more likely to 
take such a long-run point of view, while the individual entrepre- 
neur may logically determine his operations in terms of his own 
lifetime or shorter periods. 

Methods of analysis. The first step in the project is to define 
the industry to be considered. The "horizontal" concept of an 
industry is the most useful — i.e., the industry is defined as con- 
sisting of a group of firms with the same or close-substitute prod- 
ucts at a single stage in the process of production and distribu- 
tion. The industry could be, for example, a group of lumber mills 
or a group of retail lumber yards. The study should probably be 
limited to a particular region or area to secure reasonable homo- 
geneity among the firms considered. Forest-products industries 
lend themselves fairly readily to group study in this manner, 
because large numbers of similar firms exist at several stages in 
production and distribution. Separate studies of this horizontal 
character can be combined to provide an analysis of an industry 
in the more inclusive sense of all those firms engaged in the pro- 
duction and distribution of a product, and individual studies 
should be undertaken with such ultimate combination in mind. 

The next step is to discover what the main sales policies and 
practices in fact are in the chosen industry. The researcher, of 
course, fortifies himself with as much information as can be gained 
from published sources. The basic literature in sales management 
and the results of marketing studies such as topics 62-70 are of 
considerable assistance here. Trade papers and the proceedings 



372 RESEARCH IN THE ECONOMICS OF FORESTRY 

and bulletins of trade associations are useful sources. Consultation 
with experienced members of two or three of the firms in the 
industry aids in working up a list of the policies and practices 
likely to be encountered. 

On the basis of this general information it is desirable to pre- 
pare a short questionnaire which can be used to make a survey 
of the firms in the chosen industry. This survey is aimed at de- 
termining quantitatively the prevalence of various policies and 
practices. If the number of firms permits, all are covered in this 
preliminary investigation. If a great many firms are involved, a 
sample must be taken, and the problems of sample design must 
be carefully considered. 

After it has been determined what policies and selling pro- 
cedures are in use, the next step is to study the factors which led 
the firms to adopt the particular policies and methods. This can 
best be done by the case method. A selection should be made of a 
small number of firms representative of the major policies and 
practices of the industry. It is well to include also a few firms 
which represent exceptions to the most widely held policies. 

The firms in this small sample are then studied as closely as 
possible in an effort to determine how particular decisions were 
made and what the relevant considerations were. Published 
sources are likely to be of little assistance in this investigation. 
Occasionally many details of the operations of a firm are disclosed 
in the records of a court of law or an investigating committee 
of a legislative body. However, major reliance must be placed 
on the full cooperation of the selected firms in making available 
the necessary information. Minutes of meetings and correspond- 
ence between executives are useful with respect to major decisions 
in large firms. In small firms these records are probably not kept. 
In any case, conferences with members of the firm are an impor- 
tant source of data. 

After the records of the cases have been compiled, it remains 
to analyze them, comparing, contrasting, and determining whe- 
ther any general statements or conclusions are possible. These 
results may then be still further compared to those of the proj- 
ects mentioned above as being conducted at the industry level 
rather than on the basis of individual firms, and the response of 
firms to factors underlying industry behavior can be described. 

References. Discussion of the major types of sales policy: (i) 
Tosdal, Harry R.: Problems in sales management; xx, 894 pp.; 
New York, 4th ed., 1939. (2) Maynard, Harold H., and H. C. 



MEETING OF SUPPLY AND DEMAND 373 

Nolen: Sales management; ix, 667 pp.; New York, rev. ed., 1950. 
General background material: (3) Weyerhaeuser Forest Products: 
Modern lumber merchandising with the 4 square line. . .; 76 
pp.; St. Paul, Minn., 1930. (4) Compton, Wilson: Lumber — an 
old industry — and the new competition; Harvard Business Re- 
view X, 2, pp. 161-169; 1932. (5) Fortune Magazine: Lumber; 
vol. IX, 4, pp. 62-76, 155-190; 1934. References to case studies 
of individual firms in a variety of industries will be found under 
" Sales policies" in The Industrial Arts Index. 

PRODUCT ASPECTS OF THE MARKET 

So extremely varied are timber products in species, size, quality, 
use, and other characteristics, that precise definition of the com- 
modity marketed is essential to marketing research. The purpose 
of the four research topics in this section is to investigate the 
relation of the quantity, form, and description of a product to 
the process of selling and buying and to the product's value in 
this exchange. 

74. GRADING OF TIMBER AND TIMBER PRODUCTS 

To determine the relative merits, from the economic point of 
view, of various methods of grading standing timber or logs. 

The purpose of a tree- or log-grading system is to facilitate 
accurate description of this raw material and accurate knowledge 
of its value by sorting it into groups that are reasonably homo- 
geneous with respect to value. Since value and the factors affect- 
ing it depend upon the use to which the raw material is put, a 
given grading system is infrequently optimum for more than one 
particular use-class of material — for example, logs of certain spe- 
cies intended for yard lumber and miscellaneous timbers. Logs 
for shop lumber might be better segregated by a different system. 

Grading standing timber, logs, and other timber raw materials 
in advance of manufacture involves a difficulty inherent in all 
preprocessing stratification, that many of the characteristics which 
affect value — such as the number, size, soundness, and distribu- 
tion of knots in the finished lumber to be produced from a saw- 
log — are not directly observable in the material to be graded. 
Such characteristics must therefore be inferred from others that 
are observable — e.g., the size of the log and the occurrence of 
defects on the surface of the log. The problem of a grading system 
in such cases is to specify directly observable criteria which are 
related as closely and surely as possible to the ultimate criteria 



374 RESEARCH IN THE ECONOMICS OF FORESTRY 

of value of the end product upon which largely rests the value 
of the commodity to be graded. 

The ideal grading system is that in which the preprocessing or 
preperformance grades are highly correlated with processed or 
performance grades or value, but in which this correlation has 
been carried only to the point where the marginal benefits ac- 
cruing from it are equal to the marginal cost of determining the 
grade. The marginal benefits of a grading system, if not the mar- 
ginal costs, will vary with the use to which the system is put. 
For example, the marginal benefits where a system is applied to 
large batches of logs, will be different from those where the system 
is applied to smalPbatches. Again, marginal benefits of a system 
used to estimate the average value of all logs in a batch will 
differ from those of a system used to segregate unprofitable logs 
{57b). Strictly speaking, therefore, a system can be evaluated only 
in relation to the particular objectives of the user, such as the 
buyer, the seller, the processor, or the community at large. The 
job of placing an economic evaluation on a grading system is thus 
closely akin to that of evaluating the performance of a piece of 
machinery — e.g., determining the economic efficiency of a power 
saw. 

There are two ways to decrease the magnitude or frequency of 
preprocessing misclassification : (a) by increasing the number of 
grades; (b) by revising the number, interpretation, or methods of 
combining the grade criteria. Generally speaking, both these 
changes involve increasing the cost of applying the grading sys- 
tem. However, it is found in many cases that strong practical 
considerations confine both the number of grades and the elabo- 
ration of criteria within rather narrow limits, so that the problem 
of developing or improving a grading system centers around the 
question of interpreting or combining a given set of criteria in 
various ways that do not involve much difference in grading cost. 

Where two or more alternative grading systems involve about 
the same costs of applying the grades, so that the marginal cost 
is negligible, the choice is relatively simple. That system is best 
which, applied to a large, representative batch of the commodity, 
segregates the individuals in such a way that the pooled variance, 
within grades, of their values per unit of measure is the least. 
That is to say, if all the individuals in the batch are ranked in 
order of value per unit of measure, the best system is that which 
comes closest to segregating the individuals into a given number 
of grades without disturbing their ranks. 

What shall be taken as the " value" of a commodity in this 



MEETING OF SUPPLY AND DEMAND 375 

connection? The only strictly correct answer to this question is 
that the value must be taken as the value per unit of measure, in 
terms of the market, of the commodity in question, in the form 
and at the place where inferences are to be drawn on the basis of 
the grading. That is to say, if standing timber is to be graded as 
a basis for sale, then the value to use in weighing grading systems 
is that of stumpage. This is best expressed as the "conversion 
surplus" of the stumpage — the sales value of the end product 
such as lumber, minus all the direct costs of logging and milling — 
that is, the net contribution of the stumpage to business overhead 
and profit. On the other hand, if logs are to be bought in the mill 
yard on the basis of grade, the value to use is that of logs in the 
yard, conversion surplus again being a logical expression of this 
value. Or if logs are to be graded as a means of forecasting lumber- 
grade yield, lumber value f.o.b. mill should be used. 

However, practical considerations modify the above rule. Grad- 
ing systems are frequently intended for application by a variety 
of users in a variety of situations and over a substantial period of 
time. Indeed, the full advantages of a grading system often can- 
not be gained unless the rules become widely known, accepted, 
and used, and unless the rules remain in effect without substantial 
change for a matter of years. This means that some compromise 
must often be struck between an expression of value that is 
ideally suited to specific situations and one which, though less 
well suited in this respect, is more generally applicable to various 
situations and more stable over time. For instance, in the case 
of sawlogs, the most widely applicable and stable element of value 
is lumber price. Price levels vary with place and time, but rela- 
tive prices of the different grades of lumber, which are what mat- 
ters, are comparatively stable. The cost of milling is a less widely 
applicable and stable element of value. Consequently, in some 
instances sawlog grades are best weighed by using an expression 
of value that reflects, in addition to lumber value, only the more 
stable costs or those that are most prominently correlated with 
the lumber value of the log. And in some instances lumber value, 
unmodified, may be the most usable expression of sawlog value. 

75. EFFECTS OF TRADE PRACTICES AND STANDARDS ON THE MARKETING 
OF A TIMBER PRODUCT 

To describe normal trade practices, such as grading and stand- 
ardization, which characterize a timber-products market; to de- 
termine their effects on the economic position of those in the 
market; and to evaluate their effects on the efficiency of the mar- 



376 RESEARCH IN THE ECONOMICS OF FORESTRY 

keting process. By economic position is meant primarily bargain- 
ing position (7/, 72) and income. Efficiency is thought of in 
terms of the cost (64) of performing the services of marketing. 

The description of trade practices, so far as the present topic is 
concerned, includes such questions as these: Is the product graded 
(74)? If so, are the grading rules and their application stand- 
ardized locally or generally? How is the product measured? How 
widely standardized is the unit of measure and its application? 
What is the practice in specifying and standardizing other at- 
tributes of the product, such as dimensions, condition, and species? 

One example of a study under this head is to determine the 
effects of using the Doyle rule instead of some other to measure 
sawlogs. Another example is to investigate the effects of instituting 
a grading system for veneer logs or pulpwood. 

76. ROLE OF PRODUCT DIFFERENTIATION IN FOREST-PRODUCTS 

MARKETING 

To determine the nature and extent of product differentiation, 
the factors determining its effectiveness, and its results in terms 
of price, quality, and quantity in the market for a forest product. 
By product differentiation is meant the act of advertising, brand- 
ing, or otherwise distinguishing the product of a particular firm 
or group of firms in such a way as to put these firms in a quasi- 
monopolistic position. 

The study is best undertaken for a specific product within a 
rather broad area. The activities of trade associations and other 
groups and of sample firms are investigated in order to identify, 
describe, and evaluate the practices which tend to capture a 
portion of the market for the groups or firms in question. Some 
indexes of the effectiveness of the product differentiation are the 
prevalence and persistence of differentiating practices, the degree 
to which the firm's demand curve (92) departs from the purely 
elastic form, and the stability of prices in the short run (83, 83a, 
83b). The results of the differentiation may be measured in terms 
of these and other indexes, such as the behavior of price, quantity, 
and quality compared to that of other commodities known to be 
highly differentiated and commodities known to be essentially 
undifferentiated. 

77. STOCKS OF A FOREST PRODUCT— Kenneth S. Boardman 

Purpose. To study stocks of a forest product in the hands of 
market agencies: their amounts, changes over time, relation to 



MEETING OF SUPPLY AND DEMAND 377 

production and consumption, and functions in the marketing 
process, and the basic factors determining their amounts. 

Lumber stocks will here be taken as the case in point. 

Definition. Lumber stocks are denned as all lumber in existence 
purely in the form of lumber — i.e., after it has been sawed from 
the log, and before it is fabricated into other goods such as furni- 
ture parts and houses. For convenience, the concept of stocks is 
here further limited to exclude those in the hands of ultimate 
individual consumers and stocks of second-hand lumber, such as 
from houses that have been torn down. 

Relation to the field. The prime significance of lumber stocks 
is that they are a cushion between ultimate demands and sawmill 
activity. Large stocks in the hands of intermediate agencies may 
meet a short-lived increase in demand without its impulse being 
translated into increased lumber output or prices or increased 
sawmill employment. However, low stocks of particular lumber 
items — whatever lumber stocks may be in the aggregate — will 
speed the impulse from demand to the sawmill economy. It 
follows that a knowledge of stocks is valuable in such other lines 
of research as employment (p), marketing (63, 70), prices (80, 83, 
86), requirements (89) , and production {61). 

Beyond its relation to other research, a knowledge of stocks is 
valuable, if not essential, in many administrative decisions — for 
example, in deciding on the production program of a sawmill, the 
buying program of an intermediate market agency, or programs 
of government aimed at procuring lumber or regulating its output 
and flow. 

Scope. There are many possible studies in the field of lumber 
stocks. Studies may vary in respect to the categories of lumber 
that are considered, the geographic scope, the stock-holding agen- 
cies included, and the problems studied, such as magnitude and 
changes of stocks, their causes, and their effects. 

The student must consider the categories of lumber that will 
be included in his study and the separate categories that will be 
recognized: species or species groups; product groupings such as 
factory lumber, construction lumber and dimension, ties, and so 
on; and grades, sizes, and workings. If an analysis of the changing 
composition of stocks is a central feature of the research, then it 
will be necessary to consider many detailed categories of lumber. 
Otherwise every effort should be made, in the interest of saving 
cost, to reduce the number and detail of categories, either by 
grouping or by exclusion. 



378 RESEARCH IN THE ECONOMICS OF FORESTRY 

Next is the question of geographic scope. National or even inter- 
national coverage, with appropriate regional breakdowns, is es- 
sential where the information is to be used in broad programs such 
as those of production control or planning for economic stability. 
The coverage of a single region may be sufficient where the re- 
search is done from the viewpoint of a particular industry group, 
especially where attention is directed primarily at local stock- 
holding agencies. Still more localized areas may be chosen for 
study; in some cases such areas may be selected as representative 
of a region, and detailed studies made of changes in stocks, their 
causes, and their effects, with considerable saving in cost as 
compared with a region-wide study. 

Which stock-holding agencies to include, and which ones to 
keep separate, is also a question. The main groups of agencies are 
the initial producers, yard wholesalers (including concentration 
yards), retailers, remanufacturers, and industrial and construc- 
tion consumers. Considering such data as are now available from 
secondary sources, perhaps the most notable gap exists in the 
case of lumber stocks of industrial consumers. Studies in this field 
are needed not only to help close the gap, but also to answer 
specific questions. For example, as a guide to possible ways of 
expediting shipment of goods in time of national emergency, what 
is the relation of industrial consumers' stocks to consumption of 
containers, blocking, dunnage, and other lumber for shipping 
use? In relation to the question of agencies, it should be noted 
that although the present research is done primarily in the con- 
text of groups of firms, some attention may profitably be given 
to the behavior of individual firms in order to explain the group 
phenomena. 

The basic problem in the field of lumber stocks is to assemble 
and interpret a time series — purely a statement of amounts on 
hand at periodic intervals, and the meaning of these amounts. 
However, this is such a difficult problem with respect to certain 
lumber categories, areas, and agencies that special studies of 
ways to obtain the data — perhaps including small-scale trial sur- 
veys — may in such cases be regarded as units of research in 
their own right. 

A second problem, or group of problems, concerns the factors 
determining stocks and changes in stocks. What role is played in 
stock changes by consumption and price changes and market 
outlook, as reflected in unfilled orders and other factors, and how 
does this vary by stock-holding agency? How does it vary as 



MEETING OF SUPPLY AND DEMAND 379 

between the short and longer run? What determines the stock- 
holding policy of an individual enterprise? What is the time lag 
in movement of stocks from sawmills into the hands of successive 
agencies in the marketing chain? How important a determinant 
of stocks is the seasoning process in times of slow demand and 
in times of brisk demand? What types of agencies hold the major 
share of the stocks, and why? Who finances the holding of stocks? 
Do the relative holdings of the various types of agencies differ 
in times when stocks as a whole are large and in times when they 
are small? What trends can be observed in the relative holdings? 
How do production levels relate to total levels of stocks, and how 
does this relationship vary with changes in production? What 
significant short-term and long-term movements in stocks can 
be observed, and to what are they related? These are some of the 
questions that may be investigated. 

Finally, a third type of problem concerns the effects of levels 
and changes in stocks. General areas in which effects may be 
sought are production, consumption, prices, employment, buying 
and selling activity, and construction and other activity based 
upon lumber. The effects of stock-holding policies upon the profit 
of individual firms or related groups of firms may be studied. 
What are the effects of inventory policies upon pricing, adver- 
tising, and other enterprise policies? Still another problem is the 
effects of stock levels or changes in one type of agency upon the 
holdings of other types of agency. Beyond this, how are lumber 
inventories related to inventories in other parts of the economy? 
In general, the point of view in studies of effects and interrela- 
tionships will be that of the short run. 

A survey of lumber stocks. By way of illustrating further the 
sort of investigation that may be made in this field, it will be 
appropriate to return in more detail to the first of the three types 
of problems discussed above — assembling and interpreting a time 
series. This work is basic to the entire field of stocks research. A 
project may be considered whose purpose is to ascertain the 
amounts of softwood and hardwood lumber in the hands of each 
major type of stock-holding agency in the United States at peri- 
odic intervals, starting with as early a date as possible. A further 
purpose is to explain the data compiled, so that the research 
worker, for example, can use them correctly. 

1. Obtaining the data. For historical data on lumber stocks, 
secondary sources must be relied upon exclusively. Data on saw- 
mill and concentration-yard stocks are obtainable from reports 



380 RESEARCH IN THE ECONOMICS OF FORESTRY 

of the National Lumber Manufacturers Association and affiliated 
regional associations; from the 1950 Statistical Supplement to 
the U. S. Commerce Department's Lumber, Plywood, and Allied 
Products Industry Report', from the U. S. Census Bureau's Facts 
for Industry (Series 16-5, 1943-1947); from the same bureau's 
annual reports on lumber, lath, and shingle production; and from 
the Census of Manufactures: 1947 (Report MC24A). Some data 
on wholesale lumber stocks are to be found in the U. S. Census 
Bureau's Facts for Industry (Series 16-6, 1 942-1 947). Retail lum- 
ber stocks are recorded in the same series of publications and 
also in the U. S. Department of Commerce Statistical Supple- 
ment referred to above, in the U. S. Census of Business: 1948, 
and in reports of the National Retail Lumber Dealers Associa- 
tion. Historical data on the stocks of industrial and construction 
consumers are unobtainable, so far as is known. 

Careful analysis of the coverage, type of sampling, and other 
characteristics of the various historical series may reveal ways 
in which these series may be combined or otherwise used to 
strengthen one another. The object of this analysis will be to de- 
velop the most useful single series for each type of agency from the 
rather diverse data obtainable from the secondary sources. As 
they emerge, the results should be checked in all ways possible, 
particularly by correlating the series with data on the most re- 
liable of the causal factors discussed previously. 

Thought will be needed concerning the problem of developing 
adequate, well-integrated current series on all the various cate- 
gories of lumber stocks, so that eventually good historical data 
will be available. Filling the gap for industrial and construction 
consumers' stocks is a foremost need. Classified lists of these 
consumers, such as those used by the U. S. Forest Service in ob- 
taining its Wood Used in Manufacture data, should provide a 
basis for sampling the consumers. 

2. Interpreting the data. With data assembled, it remains to 
interpret or explain them for use. What peculiarities in the method 
of sampling or in collecing the data may affect the interpretation 
of the results? What biases may exist that should be taken into 
account by the user? In general, how accurate are the data? 
In the case of time series for the various classes of stocks, what 
reporting interval has been used? What period of time is covered 
in a given figure on stocks? For example, in the case of a quarterly 
estimate, is this an average of daily or weekly stocks throughout 
the quarter, or an average for the last day or week in the quarter, 



MEETING OF SUPPLY AND DEMAND 381 

or what? Are the items in a given time series comparable with 
respect to coverage, interval, time period, and other relevant 
matters? Are the different series comparable, so that they may- 
be added? These and other questions will need to be analyzed and 
the resulting statement of interpretation appended to the data. 

PRICES— STATIC ASPECTS 

A strategic feature of the market is price. Prices provide direct 
evaluations of many goods and services and form the basis for 
derived evaluations of most others. When it is recalled that the 
function of economics is evaluative, the reason for the central 
role which prices play in economic analysis becomes apparent. 
Both because of this key position played by price and because of 
the complexity of price formation and price behavior, this field 
of analysis is here segregated from studies of other features of 
the market. But these other features, as outlined in the preceding 
statements in this chapter, provide essential background against 
which prices must be studied. Price analysis can proceed only 
after a clear picture has been obtained of the general features of 
the market — its geographic, institutional, and functional aspects 
— and of the specific product which is being marketed. 

The present section includes those types of price analysis where 
time does not enter as an independent variable — studies of prices 
at a given instant or where there is no functional relation between 
price and time. Thus, it begins with a statement on price data 
collection (j8) which is basic to all other studies of price. Next 
comes a study of joint product price relationships (79). Because 
"jointness" is a marked characteristic of all forest production, 
this statement, along with others related to the definition of 
product classifications (e.g., 7^), is an essential preliminary to an 
understanding of price structure and behavior. The last two 
topics in the section deal with functional relationships between 
prices and (a) the stages of manufacture at which pricing takes 
place (80), and (b) geographic factors {81). 

78. CURRENT PRICES OF RAW TIMBER PRODUCTS— H. R. Josephson 

Purpose. To collect current data on sales prices of raw timber 
products (such as stumpage, logs, bolts, poles, mine timber, and 
hewn ties) in an area and to express the data in a form useful for 
marketing decisions and price analysis. 

Relation to the field. Widespread application of good forestry 
practices on private lands depends in large measure upon the 



382 RESEARCH IN THE ECONOMICS OF FORESTRY 

profitability of growing and harvesting timber. It is evident that 
profits in turn depend partly upon prices received for timber 
products. In spite of the importance of prices to forest owners 
and also to operators of wood-using plants, price information for 
timber products is generally not available in organized form. 
Sellers of small quantities of timber products are typically in an 
unsatisfactory bargaining position; numerous sellers, having little 
knowledge of timber values, must generally bargain with com- 
paratively few purchasers, who are relatively well informed (7/). 
This project may, therefore, be regarded as one phase of a forest- 
research program designed to inform forest-land owners and op- 
erators of possible returns from the practice of forestry {41). 

Factual information on prices is of direct usefulness, also, to a 
variety of other parties engaged in producing, buying, selling, and 
using timber products. In addition, reliable data on prices are 
basic to the analysis of marketing problems (e.g., 62), to research 
on such subjects as the economics of timber growing (e.g., 42), 
and to such public programs as price control (84). 

Data required and sources. Price data needed will vary in dif- 
ferent areas, depending upon the local importance of timber prod- 
ucts, local market conditions and knowledge of markets, and 
prospective uses for the data. The most important raw timber 
products for which price data generally are needed include saw- 
logs, veneer logs, and pulpwood. Prices for other products generally I 
of less importance from the standpoint of volume or value — such as 
cooperage bolts, poles, piling, posts, hewn ties, mine timber, and 
fuelwood — also may be included. Practical limitations of funds 
and personnel may, of course, require giving first priority in price 
collection to the most important products. Collection of price 
data for lumber, wood pulp, and other finished or semifinished 
products is considered outside the scope of this project. 

Prices for standing timber also are of widespread interest, but 
there is some question as to the desirability of collecting and pub- 
lishing such data. Individual timber tracts vary so widely in terms 
of species, tree size, quality of timber, logging conditions, distance 
from market, and other value-determining factors that it is diffi- 
cult to generalize price data for standing timber. Average stump- 
age prices may not be applicable to any of the local stands for 
which valuations are desired. However, if the stumpage-price 
data collected are reasonably accurate and sufficiently analyzed, 
and especially if local timber conditions are rather uniform, cover- 
age of stumpage prices would be highly desirable. Data on prices 



MEETING OF SUPPLY AND DEMAND 383 

of standing timber should include an indication of the product to 
be cut, such as sawlogs or pulpwood; the character of timber sold; 
and other value-determining factors. 

Provision should be made for obtaining all pertinent details 
regarding each sale. Thus, in the sale of sawlogs, for example, it 
is essential for maximum usefulness that prices be quoted in 
terms of a specified unit of measure, such as board feet Doyle or 
International rule, and in terms of species, grades, quantity, and 
location of sale in relation to point of utilization. Log grades are 
not in common usage, yet judging from experience in other fields, 
price quotations to be meaningful must be expressed in terms of 
well-defined quality standards. A phase of this price project may 
therefore be an attempt to promote the local use of grades in 
order to establish price patterns according to quality of timber. 

As an additional aid in evaluating the price data collected and 
to establish causes of variations in price from sale to sale, it will 
be necessary to obtain information on price-influencing factors. 
These may include not only factors of species, quality, quantity, 
and location as mentioned above, but also such other factors as 
the terms of sale, the degree of knowledge and bargaining ability 
of the buyer and seller, the need for income on the part of the 
seller, and local competition for the products sold. Such informa- 
tion can be obtained, for the most part, only by personal inter- 
views with parties to the transactions, or with others having 
accurate knowledge of the particular transactions. 

Price data may be collected from sellers of timber and timber 
products, local buyers and middlemen, or wood-using plants. It 
is likely that all sources of information should be used to some 
extent in a given area. Many wood-using establishments such as 
pulp mills and sawmills publish price lists for products they buy, 
and where checks indicate that actual prices approximate the list 
prices, such sources may provide usable information. Generally, 
however, it will be necessary to obtain data on actual sales from 
sawmills and other manufacturers of timber products and from 
sellers of timber and timber products. 

Methods of collection and compilation of data. The project 
should include a determination of both the most efficient system 
of price collection and the character and size of staff required for 
the area covered. Collection of prices will ordinarily be on a sam- 
pling basis, partly because of difficulties in obtaining accurate 
price data from all possible respondents, and partly to minimize 
the funds and efforts required. Some personal interviews will be 



384 RESEARCH IN THE ECONOMICS OF FORESTRY 

called for, certainly in the initial phases, and at least at intervals 
thereafter. In some areas it may be possible to obtain price re- 
ports from local foresters. A system of obtaining price quotations 
largely by mail also may be feasible, in which case relatively 
little personnel would be necessary except for compilation. A 
combination of mail canvass with sufficient personal follow-up to 
obtain an unbiased sample of prices may be the most efficient 
procedure. 

Where a mail canvass is used, the questionnaire should be as 
simple as possible, with instructions plainly worded. Since it will 
probably not be possible to obtain by mail certain qualitative 
information on price-determining factors, personal follow-up of 
sample transactions will be necessary. The number of reports 
needed for statistically reliable price quotations will depend upon 
the local variations in prices and the degree of sampling accuracy 
desired. 

The area to be covered in a price-reporting system depends, of 
course, upon the purposes in view and upon personnel and funds 
available. Market areas having rather uniform characteristics of 
forest resources, forest industries, and market outlets for timber 
products represent logical units for price reporting (/). With some 
exceptions, such areas comprise only portions of states. 

In compiling prices for publication, data for a given item should 
be expressed in terms of both averages and a range in prices for 
various qualities or other breakdowns. Some qualitative interpre- 
tation of the data in terms of price-determining factors also is 
highly desirable to indicate limitations of the data, their apparent 
representativeness, and local applicability. Price lists preferably 
should also be accompanied by some analysis of market trends, 
information as to buyers and sellers of timber products, and other 
pertinent market facts. 

Price data will be of most value if they are up-to-date and 
issued at fairly frequent intervals. Because timber-products prices 
are relatively stable, it is suggested that compilation of reports 
at 6-month intervals may be most practical. Timing will depend, 
however, upon the importance of seasonal movements in price, 
rapidity of economic changes, funds and personnel available, and 
other factors. Although collection and publication of price data 
at less frequent intervals would be of diminished value to buyers 
and sellers of timber products, such data would be highly useful 
for general analyses of prices in connection with forest-income 
calculations (8) or long-term estimates of potential returns from 
forest enterprises (//). 



MEETING OF SUPPLY AND DEMAND 385 

References, (i) Barraclough, K. E.: Forest market report, 
1 947-1 948; N. H. Agr. College Extension Service Bui. 82; 31 pp.; 
Durham, 1947. (2) U. S. Dept. Agriculture, Bureau Agr. Eco- 
nomics: Agricultural prices; mimeographed; Washington, issued 
monthly. (3) Steer, Henry B. : Stumpage prices of privately owned 
timber in the United States; U. S. Dept. Agr. Tech. Bui. 626; 
163 pp.; Washington, 1938. (4) U. S. Office Price Administration: 
Lumber desk book; U. S. Dept. Commerce Library, 2 vols., 
looseleaf; Washington, 1 944-1 946; especially section on maximum 
price regulations. 

79. PRICE RELATIONSHIPS OF JOINT FOREST PRODUCTS 

To establish relationships between prices of forest products 
which are in joint production — or between prices of different 
grades, sizes, workings, and conditions of a single forest product — 
and to relate these differences to causal factors of cost, market 
demand, etc. 

Forestry is replete with examples of joint production. Timber, 
forage, and water may be joint products of a singe forest enter- 
prise; sawlogs, pulpwood, and veneer bolts, of a single tree; and 
clear, shop, and common grades of lumber, of a single log. The 
price of one of these joint products will be related to and will 
influence the price of other products in the cluster. Hence, knowl- 
edge of what these price relationships are and of the reasons for 
them is essential to understanding the price of any item in the 
cluster. 

The methods of data collection are those of topic 78. Prices of 
the joint products will usually be collected from several localities 
and at a number of different instants of time, so chosen as to 
represent relatively uniform conditions from the standpoint of 
factors affecting joint-product price structure. The prices may be 
conveniently expressed as price relatives. Analysis will usually 
consist, first, of looking for patterns of relationship between the 
prices of the several items which are in joint production. Are 
prices of certain items consistently proportional to the prices of 
certain other items, at the several times and places under obser- 
vation? What items show such proportionality and to what other 
items are they related? When these patterns have been estab- 
lished, the analysis should examine the reasons for the observed 
relations. This will usually involve an examination of quality 
characteristics of the several items (74), market demands for 
them (pi, 92), and cost of production aspects (39 or 5/a). In 
addition to analyzing such information, the investigator must 



386 RESEARCH IN THE ECONOMICS OF FORESTRY 

study directly the way in which market prices for the items in 
question are actually set: how sellers arrive at established price 
differentials, what factors have influenced their price decisions, 
and the extent to which existing differentials are arrived at arbi- 
trarily or — and to what extent — are based on measurable distinc- 
tions between the products. 

80. PRICE STRUCTURE OF A FOREST PRODUCT— John H. Nixon 

Purpose. Using southern pine lumber as an example, to deter- 
mine and explain the relative levels of price of a forest product 
at successive stages of production and distribution. 

Definition. Price structure is the relationship among prices — in 
this case, the prices of southern pine — at various stages of pro- 
duction and distribution. For price to be established at a particu- 
lar stage, a transfer of title is usually necessary. 

The relationship of prices of joint products of the same raw 
material, such as the different grades and sizes of lumber from 
the log, and prices of competing products in the same market, 
such as southern pine and Douglas fir in the New York market, 
are types of price structure investigated only incidentally in this 
study. 

Relation to the field. The price structure in the production and 
distribution of southern pine lumber is the result of all the forced 
of demand and supply which affect the product. Hence, knowl- 
edge of the price structure sheds light on these forces, particularly 
when prices are broken down into their components of costs and 
profits {64). 

Information regarding the magnitude of the costs and profits 
which make up prices at various stages is a necessary early step 
in seeking an explanation of the relative levels of price. From 
there an investigation may be made of the influences which op- 
erate on the costs of production and the profits of individual 
firms. 

Procedure. The information and analysis which appear in the 
study described here fall under four headings: first, a description 
of the industry and of the structure of its markets — the agencies 
through which the commodity is channeled, and their interrela- 
tionships (63) ; second, a statement of prices for representative 
and comparable products in each market; third, a detailed state- 
ment of the costs of operation and of the profits or losses of a 
representative sample of firms at each stage; and finally, an 



MEETING OF SUPPLY AND DEMAND 387 

attempt to explain the price structure in terms of the costs and 
profits, the structure of the industry, and its economic setting. 

Gathering data will require the use of a number of techniques : 
library research; arrangement with government agencies such as 
the National Archives, and with trade associations for the exam- 
ination and release of unpublished data; and primary investiga- 
tion through interviews, qu